by Zain Jaffer
As Bitcoin and Nvidia continue their upward but admittedly jagged manner, the bear fear emotions from the past year due to high interest rates and recession talk has been replaced with excess optimism. People are suddenly hit with headlines on how Nvidia’s market cap went up by $250bn in one day, or that Bitcoin hit back its previous all time high.
Now everyone and their grandmother want to be in stocks and crypto. The Coinbase app is suddenly one of the most downloaded apps on the Google Play store again.
Before you jump in with dreams of Lamborghinis and mansions, a word of caution. Although there are many out there who speak on CNBC and Bloomberg about where they think a stock or crypto is headed, the reality is that no one really knows how the markets move.
While technical analysis sometimes work, because crowds on average think the same way, sometimes there are fundamental and macro events that take precedence. The reality is though that there is really only one thing that determines whether a stock or crypto price moves up.
That is, are there more sellers than buyers, or more buyers than sellers? That’s all. You can look at charts all day, but the reality is that a chart simply tracks what has happened already.
Then what complicates matters is the fact that sometimes these pundits and influencers are shilling their own investments. They are talking their book. Now if we know they are invested in a certain stock or crypto, we learn to take a bit of their forecast with a grain of salt. But if we feel their logic for investing is sound, then maybe we buy into their argument and hence we buy that stock or crypto.
In reality we are not all sophisticated stock or crypto analysts. Most of us do not know Elliot Wave theory, Heiken-Ashi candles, or appreciate what a 50 basis point interest rate move means for the markets. We simply take it on faith what “experts” say.
Unfortunately, there are many of these experts who take advantage of that implied trust.
Now many of us are grown adults. Yet we cannot be expected to wade through investor prospectus documents that may number many pages, or be expected to know things that analysts who talk to the founders, who analyze the technology, know. We simply trust them because they appear trustworthy.
There are no hard formulas to investing. Everyone makes mistakes. The Forbes 30 under 30 list is full of people who are now in jail, like Sam Bankman Fried and Elizabeth Holmes.
Sometimes what your mother told you is still sound advice. If it sounds too good to be true, it normally is.
###