The way we view success has always influenced our environment. For many people, success is linked to their social standing and, frequently, their wealth. When it comes to investing, this perspective can be risky, leading us to pursue what is seen as "successful" without fully grasping the associated dangers.
Throughout history, asset bubbles have been observed as repetitive occurrences where inflated optimism leads to prices significantly exceeding actual value. Recognising these patterns and being cautious is essential to avoid the risk of investing when these bubbles peak.
Priced to perfection
During the COVID period, I remember chatting with a friend who was excited about the remarkable increase in Tesla's stock price. He had made significant profits, as Tesla peaked at more than $400 per share, resulting in an impressive return of 1,283% over five years. His decision was brilliant, proving that timing is crucial in investments.
However, not everyone had a seamless journey. Investors who entered at the peak experienced a decline in their investments. Nvidia could be facing a similar situation. Nvidia provided returns exceeding 2,000% over five years. Nevertheless, like Tesla, even the most successful companies can start to struggle at a certain point.
It's not that Tesla or Nvidia are not excellent companies—they are. The issue is that their stock prices have been "priced to perfection." Investors anticipate flawless performance so that a slight deviation can lead to a market reaction. The higher the expectations, the greater the disappointment when perfection is not achieved.
The wise man
There’s a quote I love:
A wise man never loses anything, if he has himself. True wisdom is less presuming than folly. The wise man doubteth often, and changeth his mind; the fool is obstinate, and doubteth not; he knoweth all things but his own ignorance. Travel makes a wise man better, and a fool worse.
In investing, it’s easy to get sucked into stories of success. The media and market analysts often highlight these dramatic rises, but how many people admit they bought Tesla or Nvidia at their peaks? The allure of big names and huge returns can cloud judgment, but the reality is that most of us aren’t lucky enough to time the market perfectly.
It’s important to remember that good investing is rarely exciting. As George Soros once said, "If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring." Similarly, Seth Klarman emphasised, "The single greatest edge an investor can have is a long-term orientation."
The Long-Term Perspective
While luck can occasionally lead to incredible returns, such instances are rare. More often than not, the most successful investors are the ones who adopt a patient, long-term view. They ignore the noise, the hype, and the short-term fluctuations. It’s not about finding the next Tesla or Nvidia at its peak—it’s about finding solid, reliable investments and holding them through the ups and downs.
Quick wins don’t measure success in investing; it’s measured by sustainable growth over time. Chasing the latest success story might feel thrilling, but true wealth is built with a steady, disciplined approach. Ultimately, the real gold rush comes to those who can be patient, boring, and wise.
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