Updated: Jan 23
Update, if you thought about investing $40,000 to buy 1 bitcoin after its spike, but instead you traded it down/sell/short, you would have made $20,000 profit, cash, with leverage of 2:1., In less than a week.
Fast rising stocks & assets are often unpredictable and market volatility appears unprecedented in recent times.
Warren Buffett, quotes "be fearful when others are greedy and greedy when others are fearful."
Should I follow the crowd when Investing?
As most investments don’t always perform as we had hoped, and we glance enviously at instances of meteoric rises of some individual assets, that we didn’t invest in, an investor needs to be scouring the financial world for opportunities they believe will grow and grab the opportunity early, entering late can be expensive.
Entering the market at the top is often the worse thing to do, especially for an inexperienced investor. The markets are cyclical and will correct at some stage, many are already predicting doom sooner rather than later and are calling it an overinflated bubble.
Even though the developed world’s Markets, in general, have performed better than most expected amid the worst pandemic in living history, seeds of doubt are starting to emerge, as to how we will make an economic recovery over the next few years following COVID19.
What are the long-term implications economically, with increasing unemployment and the return of pumping cash into the market, quantitative easing, negative interest rates, trade wars and environmental concerns? It has got to cost us in the future.
However, not to be too pessimistic, certain companies will continue to grow and profit and looking for the right ones to buy can be as important as any investment we make in these times.
How do we find the right opportunities? The information out there can be confusing and sometimes we may just go with the flow, are we being unwittingly swayed by the web?
Do the growing social media influencers really make us do what they want us to do?
I must admit, I am constantly scouring headlines on the web and I am sure they have an impact on my decision making. Consciously or subconsciously.
Published in 2017. The Institute for Public Relations reported that nearly one-quarter of respondents (21%) said they were likely to seek advice in decision-making related to financial services via social media.
Raddon Research Insights found that overall, 30% of consumers say that information or advice they found on social media had influenced them to purchase a type of product or service. When it comes to making a financial product or service purchase decision, the odds increase, influencing almost 4 out of 10 of us. Jan 9, 2019
This type of research findings fits into the current debate highlighted recently in the US, do people follow other opinions blindly without real consideration to the facts via social media? Are alleged algorithms created by these influential platforms herding us into a certain direction???
Hey, hold on, aren’t the almost extinct “financial advisors” also steering us into certain investment decisions? Influenced by their commissions and own company agenda? Aren’t analysts doing the same. Aren’t we influenced by patriarchal members of our family to invest in certain ways?
Whatever the reasons we decide to invest in certain assets, there must be an array of factors that influence us. The question is, are we doing the right things all the time or are we just following the crowd for the sake of it without making our own informed decisions?
Two newsworthy investments that are all over the media, are Bitcoin & Tesla. The news about them is universally.
Guggenheim’s Scott Minerd Says Bitcoin Should Be Worth $400,000, Bloomberg Dec.16, 2020.
JPMorgan says bitcoin could rise to $146,000 long term as it competes with gold, CNBC, headline Jan.5,2021.
Conversely after the massive 700% year rise in Tesla, many headlines are predicting a reversal.
JP Morgan warns investors that Tesla stock is ‘dramatically’ overvalued in new report, Fortune.com, Dec.11.2020
2020 Tesla Deliveries Will Beat Expectations — But the Stock Is Still a ‘Sell’, yahoo Finance December.30,2020
Confusing right! imagine how the social media influencers are spreading such headlines to their ardent followers and then they are retweeting etc.
Do we read the entire article following the headlines and the reasons for the analyst’s prediction, did we understand the caveat they always use, they have too, nobody knows for sure, but the headlines dazzle?
Headlines and pictures prime us to act in a certain way, often without us knowing. A rising market or investment is a classic example. We take it as proof it’s destined to keep rising, the flock must be right.
When it comes to investing, the problem with following the flock as evidence of direction is that it may be wrong, popularity doesn’t mean the correct time to buy or sell.
“Buy when everyone else is selling and hold until everyone else is buying.” J. Paul Getty
Contrarian investing (going against the crowd) is more than knowledge it’s also the emotional strength to decide what you believe, not what’s being headlined.
Investing is about how you control your instincts. As social creatures, we are drawn to what’s popular, but in markets, popularity and profitability are often poles apart.
"The most contrarian thing of all is not to oppose the crowd but to think for yourself." — Peter Thiel
In terms of Bitcoin, there seems to be a battle between the old establishment and the next generation.
The Financial Conduct Authority (FCA) warned investors on Monday they should be prepared to lose “all their money” if they choose to invest in cryptocurrency products offering high returns. Although not referencing Bitcoin as an asset purchase, this type of comment still undermines it and influences people.
Should I follow the trend? Trading.
CFD trading enables you to speculate on the rising or falling prices of a fast-moving asset, although this form of derivative trading is often associate with bigger risk, maybe trading the sharp volatility in the short term can be just as profitable as holding an asset for a long time.
CFDs are attractive to day traders who can use leverage to trade assets that are more costly to buy and sell. Many would rather trade Bitcoin today than buy it with it's massive volatility and future price uncertainty.
It’s not simple and we will never get it 100% correct and it depends on your appetite for risk but if you can catch the trend in the short term and close in profits, all well and good.