Retail investors' wrong investment concept not worth trying at all

We have received many investment concepts from family, school, media, peer influence, and the Internet. To be honest, not only is it not helpful to our investment, but many of these concepts are really not worthy trying. This article will discuss some of these typical common and influential investment myths.

Table of Contents

Topic arrangement

Each of the following topics will roughly include three parts:

Give my opinion
Investors’ myth
Related articles on my blog

Endowment insurance

Most people like to buy endowment insurance (savings policies), and Taiwanese especially prefer policies with fixed coupons. The strange thing is that they are bought by office workers and salaried people, but the really rich and wealthy people will not even consider it. This is just a big scam of robbing the poor and helping the rich.

You take the hard money you receive every month to the financial group to build a building as a charter to collect rent, and use your hard money to invest, then pay you a pitiful little interest or dividends. The best case for buying a savings policy is only slightly better than the inflation rate. Investors might as well buy ETFs that track the broad market.

Investor’s myth: Large financial groups are too big to fall, it is reliable for my retirement fund.

Related articles on my blog: “Most investors should invest ETFs tracking broad market“

Buy mutual fund

When I first started working about 30 years ago, almost everyone with the same common sense of financial management believed that money should be invested in stock mutual funds, because fund managers know better than us and can make a lot of money for us. But I found that this idea has been subverted in recent years, and the younger generation no longer believes in the idea that their parents took for granted; the fund industry also has no resentment. There are several major factors:

A long-term survey by Bank of America (ticker: BAC) pointed out that 75% of equity fund managers have a return rate worse than the market. In 2020, the US statistical assets under management by mutual funds totaled 17.6 trillion U.S. dollars, but the trend is gradually decreasing.
ETFs that track the broad market are generally accepted by investors. In 2020, the scale of Taiwan’s ETF will exceed NT$1.7 trillion. Yuanta 0050 ETF, which tracks the Taiwan stock market, has 190,000 beneficiaries, and Yuanta High’s dividend 0056 ETF has 350,000 beneficiaries. In 2020, the total assets of ETF in the United States are 5.2 trillion US dollars, and the trend is gradually increasing. According to MorningStar, in 2021, the total assets of global ETFs will rise to the highest level in history of 9.1 trillion U.S. dollars.
Funds will take popular and trendy names and terms to attract investors, such as technology, emerging, artificial intelligence, electric vehicles, ESG, it is basically a composition contest, many of the texts are not correct, and even the business owners in the portfolio can’t figure it out and can’t tell why.

Investor’s myth: Fund managers understand the stock market and their professions are better than ordinary people, and their return on investment is of course much higher than ordinary people.

Related articles on my blog: “Any strong reason to buy mutual fund?“

Shorting

For young people or those who are new to the stock market, shorting is extremely dangerous. The reasons are as follows:

The long-term trend of the stock market is a steady upward . Those who go against the trend will not end well.
The possible profit of long stocks is “infinite”, and the worst may be the loss of all the principal you invested, which is 100%. But shorting is the opposite of longing stocks. The best possible profit is only 100%, that is, the company goes bankrupt; but the worst possible loss is infinite.
Shorting requires a high degree of skills, which is not suitable for most investors.
Historically, there is no investor who mainly relied on shorting operations finally “retire and take top-ranking in rich man list.”

Investor’s myth: The stock price of some stocks is just too high and unreasonable. Shorting is safe because it will fall sooner or later. Shorting is reasonable.

Related articles on my blog: “Why shorting is extremely dangerous to retail investors“

Derivatives

Young people or gambler-type investors often want to use their small fund to bet, dreaming of getting rich overnight. But all derivative products, whether options, futures, warrants, etc., are extremely advantageous investment methods for market makers, and it is impossible for small retail investors to win over big whales. Most of the stories that most people have heard about making substantial profits with derivative products are mostly the advertising methods of market makers.

There are very few people who can really make long-term profits, such as Long-Term Capital, D. E. Shaw & Co., and Renaissance Technology; they are all Wall Street giants with infinite resources beyond our imagine. The most important thing is that their main trading features are high frequency and huge volume, with derivative financial products as the main investment targets, and their investment methods are completely unsuitable for ordinary retail investors.

Investor’s myth: Leverage derivatives allow small fund to bet, dreaming of getting rich overnight.

Borrow to invest

Especially young people who don’t have much funds or those who are new to the stock market. Regardless of whether the pledged assets are borrowed for investment, borrowed from relatives or friends or banks, or margin by securities brokers. During the average period, there is nothing to do, but once the market flips (usually happens quickly), you will have no time to react and lose your hard-earned money.

Investor’s myth: Those with large capital will have a great advantage in investment.

Diversification

I strongly recommend that you refer to my blog article “Why long-term investment?” and my explanation on section 5-5 of my book “The Rules of Super Growth Stocks Investing”. The best result of diversified investment is mediocre returns, but usually worse than average returns. The point is: when you use diversified investment, you have automatically given up the possibility of excess returns.

Investor’s myth: diversify investment to dilute risks.

Related articles on my blog: “Why concentrated investment?“

Portfolio rebalancing

Pulling flowers to water the weeds, it’s a illogical investment behavior. The market and your remuneration have proven that your current judgment is correct. Why should you give up the investment judgment that you have obtained market verification as a successful investment? Change to the subject with a significantly poorer return on investment.

Rebalancing your portfolio will only make you pay unnecessary commissions and effort. The only beneficiaries are Wall Street players who earn your commissions and fees. For details, please refer to my discussion on section 5-5 of the book “The Rules of Super Growth Stocks Investing”.

Investor’s myth: The market will rise in turns, the underperforming targets will come back to life, and the targets that rise too much will definitely fall.

Related articles on my blog: “Why is portfolio rebalancing unreasonable“

Invest in different industries or asset categories

It is impossible for ordinary people to be familiar with more than one industry at the same time, let alone to be familiar with different asset categories. The biggest risk for investors comes from investing in things they are not familiar with. For details, please see my discussion on section 5-5 of my book “The Rules of Super Growth Stocks Investing”.

Investor’s myth: Investing in different industries or asset categories can dilute risks, so as to have the opportunity to invest in assets or industries that may rise in the future.

Related articles on my blog: “Why concentrated investment?“

Run in the bull market, run away in the bear market

In the bull market, stocks are the most expensive. At this time, competing to enter the market is easy to buy at high points, at least there is no possibility of substantial profits, because the purchase cost is too high. Your return on investment is determined by the price you paid. Buffett wrote in his 2004 shareholders letter: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”

Charles Henry Dow wrote Rothschilds are said to have acted on the principle that it was well to buy up property of known value when others wanted to sell, and to sell when others wanted to buy. Baron Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. His original quote is believed to be “Buy when there’s blood in the streets, even if the blood is your own.”

Investor’s myth: Fear to miss out, I have to get in the train as soon as possible. The crash must be cleared quickly to reduce losses.

Related articles on my blog: “Why long-term investment is better?“

Take profit soon

For most retail investors, only long-term investment can make you rich. Please refer to my other article “Why long-term investment?” And my discussion in sections 1-4 of my book “The Rules of Super Growth Stocks Investing”.

Investor’s myth: It may fall tomorrow, take profit is safe approach.

Related articles on my blog: “Why long-term investment is better?“

Band trade and timing market

Some investors assumed they are smart enough, and adopt band trading to take profit. It will always buy at high price, at most can only make the spread of the band, and never make a lot of money.

Investor’s myth: I am smarter than the market and most people, and I can catch rising stocks.

Related articles on my blog: “Why do band trade and timing trading simply not work?”

Chasing short-term soaring stocks

Without fundamentals as stocks to rely on, the gains must not be sustainable. Investors in particular need to pay special attention to short-term skyrocketing, stocks media or celebrity touted. We are investing, not voting. Benjamin Graham once famously said: “In the short run the market is a voting machine, but in the long run it is a weighing machine.”

Investor’s myth: This stock is rising now, and all my friends bought it and made money. How could I miss it?

Related articles on my blog: “Why long-term investment is better?“

Prefer penny stocks

The probability of preferring penny stocks to come back to life is very, very low. The stock price will generally only get lower and lower, and it is usually the main target for shorting. For details, please refer to my discussion on section 5-2 of my book “The Rules of Super Growth Stocks Investing”.

Investor’s myth: Investors only see the price, not the value.

Related articles on my blog: “Misunderstanding of price and value“

Regarding derivative investment products, it is recommended that you refer to the description of the following related articles in my blog:

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