- Successful investing demands a price.
- The price is volatility, fear, doubt, uncertainty, and regret.
- All of these are easy to overlook until you’re dealing with them in real time.
- The price is volatility, fear, doubt, uncertainty, and regret.
- The bigger the returns, the higher the price
- The price is not immediately obvious. It’s not a price tag you can see, so it hits us when the bill comes due.
Netflix stock returned more than 35,000% from 2002 to 2018, but traded below its previous all-time high on 94% of days.
Monster Beverage returned 319,000% from 1995 to 2018—among the highest returns in history—but traded below its previous high 95% of the time during that period.
Dealing with it
- When the bill comes due, it doesn’t feel like we are paying a fee for getting something good. For example, we pay a fee to enter a movie theatre.
- It feels like a fine for doing something wrong.
- The natural response in such cases is that we try to avoid any fines.
Think of market volatility (price) as a fee rather than a fine
This is an important update to our mindset that will let us stick around long enough for investing gains to work in our favor. After this update, we should be able to say: “I’m actually fine if I lose 20% of my money”.