Investing is a funny thing. People talk in specifics when the market is good and only in generalities when the market is bad.
When the market is good, you hear things like, “I invested in ABC stock a couple of months ago. I’ve already doubled my money! I’m thinking about buying XYZ stock next.”
When the market is bad, however, you never hear about individual stock positions. In fact, more often than not, stocks aren’t even a topic of discussion in those time. When they are, we tend to be vague and say things like, “The market is getting hammered. The Dow was down 600 points today.”
Investors tend to let it slip when their stocks are up big but are nearly silent when there’s a negative sign in front of their rate of return.
That bias makes it difficult as an investor. You only hear the good things about investing. The bad parts are swept under the rug.
It’s like a new restaurant comes to town with a chef whose dishes are hit or miss. Either the food tastes amazing or it’s terrible. If everyone talked ceaselessly about the amazing dishes, but never said a word when they were terrible, the restaurant would probably have a generally positive perception in the community.
But some people would probably walk out of the restaurant and vow to never return because their experience was poor.
The stock market can be like that.
The bias is even worse, though, because it’s not only what we hear from friends and family. It’s also what we read online, watch on television, or listen to on a podcast.
What we hear, read and watch are stories about individuals who made a lot of money trading certain stocks or types of investments. The stories flood our Facebook accounts. They pop up on television shows. They make headlines of the newspapers we read.
All of these stories cause us to think picking winning stocks is a cinch. The riches you can accumulate simply make the whole proposition all the more enticing. Who doesn’t want a shortcut to wealth?
But do you know what the media doesn’t report, what doesn’t show up on Facebook? The stories of all the people who tried and failed. The people who were convinced they could pick winning stocks or found a shortcut to wealth, but lost money instead.
That’s not a critique of the media. You can’t blame them for not telling that story. Why? Because it happens literally every day.
The stories of people who tried and failed to pick stocks or get in and out of the market at the right times outnumber the stories of success by a factor of one thousand, probably more.
And who wants to hear a different variation of the same story literally every day?
I can picture a television news anchor intoning, “If you remember, last night on the broadcast we told you about an investor who lost big by buying Sears. Sit tight for an equally riveting story tonight about an investor who bought J.C. Penny and lost a fortune. And don’t forget to tune in tomorrow night for the fascinating tale of a poor soul who lost his life savings trading GameStop. You won’t want to miss it.”
Same story, different person – ad nauseum.
Since that story isn’t told – at least not nearly as often as it occurs – we are simply left with the positive stories. That makes it feel like everyone is getting rich and investing is easy.
Take it from me – they aren’t and it isn’t. But it sure seems that way.