61 - How to Avoid Wall Streets FOMO
NBA Finals Underway
NBA Finals Underway by Tom Davis
How to Avoid Wall Streets FOMO by Michael Huskey
Husk Fund: Market Analysis and Trades (🔒 Premium)
NBA Finals Underway
Game 1: 120-108 Boston Celtics over the Golden State Warriors. Going into the 4th quarter, the Warriors were up 92-80… before the Celtics went on a 40-16 4th quarter run. Celtics could not miss, and the Warriors were stunned. 4th Quarter Highlights.
Game 2: Sunday, June 4, 8 PM ET on ABC.
I'll be honest. This next game decides this series. If the Celtics go up 2-0 heading back East, I don't think we see another game in Cali. If any of this is news to you and you'd like to get caught up to speed, check out my NBA Finals preview. For more weekly content on the sports that people talk about at summer BBQs, subscribe to Week to Week Notes.
How to Avoid Wall Streets FOMO
This topic has been a peak interest of mine since my wife and I finished watching WeCrashed on Apple TV. As a society, we tend to think the most competent people are executives, especially those on Wall Street. But how were so many "tricked" into thinking WeWork, a shared workspace company, was worth $48 billion, All Birds, a wool shoe company, was worth $4 billion, or Peloton, an exercise bike company, was worth $69 billion, the list goes on and on.
It is a combination of two things FOMO and Fees. I will expand on the FOMO bit first because that is the section's title. Nobody wants to be the person who misses the next Amazon or Apple, especially those in circles where their success is predicated on their ability to make big decisions and spot trends. Kind of hard to justify your multi-million dollar salary if you can't spot the next big thing before the general public does.
These are the same mind tricks that companies were trying to portray to regular consumers during the Super Bowl with their celebrity-endorsed crypto ads. Remember the one where Matt Damon compared crypto investors to the voyagers who discovered the Americas. Owning a digital picture of a monkey is slightly different from getting on a boat trying to find new land with a high probability of death. Your wife might attempt to take your life if you tell her how much you spent on a picture that you could've screenshotted. I know somewhere Gary Vee is rolling his eyes about my ignorance on NFTs.
Starting at the end of 2021 and riding through 2022, companies that only had flashy Instagram accounts and celebrity endorsements have seen their valuations get sent through a blender. Why? Because people finally realized a company selling carbon-conscious wool shoes (All Birds) valued at $4 Billion did not have a competitive advantage against incumbent players in the space. You will need more than a strong vision statement and a charismatic CEO to beat Nike.
The other contributing factor to this craze is fees, specifically management fees. The big banks on Wall Street make money taking a company public regardless of what the underlying company does. A company that wants to go public pays the bank millions of dollars to analyze its reports and prepare its legal work. In 2021, 951 companies had an Initial Public Offering (IPO). That was a record. A lot of money was made analyzing junk financial reports and passing the risk onto eager investors trying to find the next Tesla.
But how do you make sure you aren't the one looking at your investment account in dismay as the value of it drops 75% in 6 months. First things first, drop the adage that you need to be comfortable losing the money that you invest. This usually ends up in either two camps. Risk-averse people put very little money into the market because they view it as a casino. Or high-risk people are treating stocks like sports bets and watching those gains evaporate. So, both groups of people end up in the same spot at the end of the day.
I have said this in the past, but if you are new to stocks, your number one goal should be to beat the returns of your bank account. For most people, that is 0.01%. Definitely, not an impossible task even for a novice. It has been tougher in this market (overall market down 13% since the start of the year).
If you are new or looking for a place to start, I recommend checking out the premium version of this newsletter. I outline my weekly trades with explanations. I also give my weekly analysis of the market.
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