I don’t have much to add to the conversation about the responsible investing part of personal finance. My strategy is to balance doing something boring and prudent with doing something interesting and speculative. The boring stuff is the cheapest beta I can find while the interesting stuff is trying my hand at finding alpha while accepting I will most likely fail. The relative sizes of these accounts have changed over the years but I usually overweight beta when I find my attention is shifting unproductively. In other words, I move money out of the alpha account when it feels too much like an alpha account. I accept that this is a way to guarantee that the alpha account ends up turning into beta. I know.
I’m glad your hobbies make sense.
My alpha account mostly contains what I view to be underhyped or overly negatively hyped stocks. Apple when the death of Steve Jobs was setting the stage for Tim Cook to turn Apple into the next Microsoft. GM over Tesla when I noticed intelligent people claiming no one but Tesla could make an electric car only to see more Chevy Bolts in the wild than Model 3s. China ETFs when it looked like China was going to sabotage its own capital markets. XLE when it looked like low oil prices and rising rates were going to bankrupt the entire energy sector. I generally try to balance investing against hype as well as doom and gloom.
All that said, I intentionally stay away from investments that are built around cultish narratives. This instinct has saved me a lot of money (HOOD, PLTR, etc.) and won me bragging rights (Theranos, WeWork, etc.) over the years but has also caused me to miss some huge winners (e.g. Tesla). I need to better hone my instincts around being wrong vs being right for the wrong reasons. For example, Tesla started out as garbage but the narrative changed at some point and I was too anchored to change my opinion. Perhaps I could have moved this investment from the alpha portfolio to the junk portfolio.
I have always found that the best way to learn is to actually play for real money. So I am going to be adding a third prong to my investment strategies. This new strategy is going to be relatively small while covering a good range of things that would normally make my stomach turn. I need to accept that you can be right for the wrong reasons. A slightly nauseating list of investments (and accompanied overthought reasoning) that I think would have made it into this portfolio in the past include:
- Tesla - “They are going to run out of money and investors will eventually stop letting Musk lie to their faces.”
- NVidia - “The gamers will revolt and the crypto and deep learning demand can’t last forever.”
- AMD - “Intel has the best fabs. How can they compete without them?”
- Dogecoin, GME, AMC, etc. - “Meme power has to run out eventually.”
- Vaccine/Lockdown Stocks - “Everything has to be priced in at this point.”
- Cruise, Hotels, and Airlines - “The pandemic will last forever and they will die.”
One thing I am relatively good at is picking up hype fairly early. I bought NVDA for $10 and sold it for $20 thinking I was a genius. I recall telling other traders about TSLA when it was $30 and trying to defend it when they said one small battery fire would put it out of business. I noticed what was happening in crypto in 2017 fairly early. I saw the meme stock hype early as well. The problem I have is underestimating how early I am. The internet has a tendency to make relatively unknown things seem widely known. Combine that with a recently parabolic chart and it becomes nearly impossible to convince yourself that you are early in what will turn out to be an absolutely ludicrous move.
The strategy will have a capital/risk allocation and I will look to be full invested at all times. I’ll start with the current top meme stocks and go from there.