Deal Of A Lifetime

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Time for today's write up. 👌

Quote

"I got a little cocky." - Sam Bankman Fried (FTX CEO) on losing billions of customer funds.

Deal Of A Lifetime

This post was inspired by the most recent Black Friday. Consumers spent a record $9.12 billion shopping online. These numbers make it obvious that the population will jump at a 50% off tag.

When it comes to stock market sales though, fear replaces the shop till you drop mentality.

As they say, the stock market is the only sale people run away from.

Why does this happen and how could it cost you? Let's get into it.

Topic Overview:

• Recency bias explained

• A stock story: -40% to +1,900%

• Stats for stock market sales

You Are Bias

For the future readers out there, at the time of writing this, the S&P 500 is currently down -15% year to date, up from -25% earlier in the year. Rising interest rates, the looming recession, war with Russia, and good ole inflation haven't given the market much room to run.

Investors are scared.

Rewind 12 months and the S&P was near all-time highs after a 100% rally from the covid lows. Investors were throwing money at the markets and everything with a price on it (even JPG images of a rock).

The question is why do people feel more fear now, compared to 12 months ago, even though stocks are "on-sale"?

In short human psychology. I'm sure there is a more technical term to describe this but I'm going to refer to it as "recency bias." According to Schwab this is when investors make decisions based on recent events, expecting that those events will continue into the future.

In case you haven't noticed, people have short memories (remember negative oil prices). When things are going bad, people act like the S&P is going to zero. When things are good, they act like it's going to 5,000,000.

In reality, it's probably going to end up much more boring than either of those.

That's why people are more fearful now, even though they are getting a better deal. 

100 Baggers

Here is a quote from one of my favorite books, 100 Baggers by Christopher Mayer.

These are stocks that return $100 for every $1 invested, or 10,000% (insert mind blow emoji).

Even if you look back 10 years to January 2012 Netflix has returned 1,900%. A $5,000 investment would be worth $100,000 today. This is AFTER the stock has fallen over 50% this year. 

Now yes this is a cherry-picked example. You could find plenty of others like this who have fallen and never made a comeback.

The point is here that for good companies (or ETFs) volatility should not be feared. It's an opportunity to buy appreciating assets at a discounted price.

Stats Don't Lie

How often should you expect a "Black Friday" sale in the market?

Since 1980, the market has declined at least 10% every 1.2 years. Over the last 40 years, we have only seen the S&P fall more than 20% six times, including the present.

So small corrections are somewhat common, but it's not often you get a crack at prices like these. Here are a few more fun stats to keep in mind.

Conclusion

Hopefully, this piece makes you look at red markets like you look at those -50% off Amazon deals.

Sales on stuff are cool, but sales on appreciating assets are cooler.

Till next time, Cade.

Cade's Finds

How Much Growth Can You Expect - Post by Nick Maggiulli on what returns you can ACTUALLY expect from your investments.

The Compound - In case you missed all the fun over the Thanksgiving holiday here is a video podcast by Josh Brown and Michael Batnick covering the big hitter events to get you back up to speed. 

Black Friday Sales Top $9 Billion - Article summarizing the Black Friday numbers. (Buy now pay later increased 78%...ooff)

Best Memes Of The Week

SBF should be locked up, change my mind.

The chisels are going dull from this year.

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Nothing in this email is intended to serve as financial advice. Do your own research. Thanks for reading, if you have any questions, comments, suggestions, etc. about the email send me a DM on twitter. See you soon!