Our perception of success has always shaped the world around us. For many, success is equated with status and, more often than not, the money we accumulate. In investing, this mindset can become dangerous, tempting us to chase what's perceived as "successful" without understanding the risks involved.
As history shows, asset bubbles are recurring phenomena in which optimism drives prices far beyond reality. Understanding these cycles and exercising caution is key to avoiding the trap of investing at the peak of these bubbles.
Priced to perfection
I recall a conversation during COVID with a friend who was thrilled about Tesla's skyrocketing share price. He had enjoyed exceptional returns, with Tesla peaking at over $400 a share, giving him a staggering 1,283% return over five years. It was a wise move for him—timing, as they say, is everything.
But for many, the journey wasn’t so smooth. Those who invested at the peak saw their investments tumble. A similar story may be unfolding with Nvidia. Over five years, Nvidia delivered more than 2,000% in returns. However, as with Tesla, there comes a point when even the best companies begin to falter.
The key takeaway isn’t that Tesla or Nvidia aren’t great companies—they are. The challenge is that their stock prices have been "priced to perfection." Investors expect flawless performance, and even a tiny miss can cause the market to turn. The higher the expectation, the greater the fall when perfection is not delivered.
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 perfectly time the market.
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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