The Reality of Get Rich Quick Stock Picks

We’re seeing it right now, in 2022. I’ll use technology stocks as an example. We saw this in the late ’90s, and we’re watching it play out again in real-time in 2022. You have a part of the market, which we’ll call “growth.” A lot of the big Tech stocks are considered growth stocks meaning they are growing earnings faster than the general market and typically carry higher valuations as investors believe they are poised for beast mode growth, hence the name. They typically are high-flying stocks that are often in the headlines, sexy companies that people like to talk about at cocktail parties. Growth stocks are generally more volatile than the overall market, and when the economy is doing well, these stocks fly. For example, the technology sector has done very well for the past 12 years or so, really ever since we came out of The Great Recession. But today, in 2022’s market pullback, we see a lot of these names down 60%, 70%, and 80% from their all-time highs just last year

Over the past few years, we saw a lot of folks who got overweight in technology because they saw the returns that were happening. At the same time, they were reading the headlines and consuming the content about this red hot sector and how tech would keep flying. Many investors became over-allocated towards technology at a high valuation and towards the end of the market cycle, or as we like to say, in the 7th inning stretch. Maybe they read an article or heard Cathie Wood speak on CNBC, and they doubled down on Pelaton, Spotify, Zoom or any of the other post-Covid favorites.

Now, as the markets are normalizing, as they always tend to do, a lot of investors are taking substantial losses without a process to mitigate risk. They get a statement that is down 50%, panic, and sell out for losses all because of the Gold Fish-like attention span and the fight or flight adrenaline hits. Everything is working against the individual investor. They say history doesn’t always repeat, but it rhymes, and we’re watching that play out right now in real-time. Bubbles are nothing new. They happen anywhere in history where there are people, money and things to invest in. If you want to have some fun (well, I think it’s fun, but I’m a history geek at heart), Google search the Tulip bubble during the Dutch Golden area of the 1600s. Fortunes were made and lost overnight in the Netherlands, and it was pure mania. Then it all came crashing down, and whoever was left holding the bag, or the flower, in this case, went bankrupt. We were hard-wired to be crappy investors back then, the same as we are today. We just have access to more information and opportunities now, which creates even more danger and temptation for investors.