In a recent episode of the Investing for Beginners Podcast, Andrew and Dave talk about some various stock market fears in an episode that is titled, ‘Investors Don’t Know Anything (About the Future).” I mean, isn’t that just a hilarious and truthful title?
The truth is that none of us know anything about what is going to happen in the future. It’s all just a giant crapshoot.
Sure, we will do as good of a job as we can to understand how things are going to look in the future, but at the end of the day, all that we’re really doing is taking a look at things that have happened in the past, trying to think of likely scenarios of the future and then applying them to our potential investments and our portfolio strategy.
Nobody knows when the market is going to crash or when the start of the bull market is about to occur. Nobody knows what sort of natural disaster might occur and cause oil to spike or what global event might make stocks crash, such as the recent trade wars and the coronavirus. Hell, I can’t even perfectly predict how a stock is going to perform the day AFTER I know their earnings. I can’t remember the exact stock at this point, but it recently beat earnings and revenues and the prices dropped the next day. I was dumbfounded.
Point is – this is an unpredictable world. And the most unpredictable thing in this world is the people living on it.
One of the examples that Andrew goes into on the podcast episode is the fear back in 2006-2007 that the world was going to run out of oil. Obviously, that didn’t happen as we’re continuing to produce oil in the US at record levels. A lot of that can be due to the invention of fracking where you essentially drill down and then horizontally and shake the oil out, but there was a large hysteria when this scare was occurring.
This chart from Macrotrends really shows how crude oil prices were steadily in the $80 – $90 range and then skyrocketed to over $160 in June 2008 before dropping down to ~ $50 in January 2009.
Obviously, this was all sparked from a fear that the world was slowly starting to run out of oil, but this fear never came to fruition, and to be honest, it was completely fabricated.
Another example that Andrew goes into is when he bought Disney back a few years ago. The talk of the town was that cable was going to die and that everyone was switching from Cable to either Netflix, Hulu or even an online streaming service. Back then, online streaming for cable was pretty new and I think the best-known option might’ve been Sling TV.
Well, things have obviously changed drastically. Nowadays you have tons of online streaming options for cable. I mean, YouTube, Hulu, DirecTV, and many, many others all have options for you to stream cable. But, the issue that I find, is that nothing really seems to be an “all in” package like I liked with my cable.
I love sports and my wife loves all of the reality shows. We do have some overlap, but our tastes in shows are very different so we need a broad range of channel options. This doesn’t work well with streaming.
While cable might not be performing as well as it used to, these companies are simply just capitalizing on the streaming opportunities if they’re positioning themselves well. A perfect example of this is Disney. They’ve been absolutely killing it with Disney+ lately and have been capturing a ton of Disney+ subscribers. In fact, they recently announced that they’re already at 26.5 million subscribers in total.
We always talk about taking the contrarian view of things and trying to find that diamond in the rough. Instead of completely avoiding any sort of cable or home entertainment company like Disney or Comcast, take a deep dive into those companies and try to see which of those companies are poised to be able to outperform their peers during these hard times.
If you’re able to stick to these contrarian viewpoints and effectively evaluate companies without looking for any sort of confirmation bias, then you’re going to be setup to really succeed in life.
Earlier in 2019 I wrote a blog post about how some investors will buy the rumor and sell the news and I really talked about how it’s more of a short-term mindset but most of us have long-term goals.
I mean, it’s kind of like going for it on the Fourth and 10 on the first drive of a football game because you’re convinced that scoring a touchdown on your first drive is going to help you win the game. Sure, scoring a touchdown would likely give you better odds to win the game, but if you’re too focused on that drive only then you’re either going to get lucky or you’re going to completely screw yourself over because you have now setup the other team to score.
With investing, it’s no different. You can either stick to the game plan of finding great companies at great valuations or you can try to stretch and make impulsive decisions to buy into and sell out of your positions because of news, rumors and fears that are going on.
I am a firm believer that when the going gets tough, that’s when you see true bright spots. I think that’s the case with people as individuals and with companies as well. When s**t really hits the fan you see who has the ability to buckle up and find a way to get through it and come out victorious. Your job as an investor is to try to find out which company is going to be best prepared to be the victor.
I know, I know – this probably sounds like a lot of pressure on your end, and it is! But guess what – you can’t make a diamond without a little bit of pressure.