How to Survive Investment Manias


I spoke with NPR the other day about many of the recent manias that have been animating markets lately. You can hear our full conversation above; highlights are below.

1. What we just saw with GameStop was extremely rare: A deeply oversold retailer during a pandemic, with very high short interest, single digit price, and free trading on the Robinhood app; mix in some long standing bullish believers; add a few high profile players like Big Short investor Michael Burry and Chewy’s former CEO Ryan Cohen; stir in cheap options and a big following on internet site Reddit.

How often do those elements line up that perfectly?

2. Markets are “a learning machine.” Good luck pulling that off again: The professional traders who got burned on $GME — and especially their algos — will adapt to this risk and like its just another new trading pattern.

3. Don’t try to pick individual stocks: The evidence is overwhelming: Very few people can manage to consistently pick the stocks that will be the big winners. I interview guys like Bill Miller (here and here) and Fidelity Contrafund’s Will Danoff (herebecause they are so rare. Most professionals at mutual funds don’t justify their fees 85-90% of the time. The challenge for individual investors is in having the skill set and behavioral temperament to do any better.

4. Don’t play Wall Street’s game. Buy index funds: It seems obvious but its overlooked: The best way to beat Wall Street is to not play its game. You don’t have to report quarterly earnings or show monthly performance, so why try? Instead, own low cost, globally diverse index funds, contribute on a dollar cost basis monthly, and rebalance annually.

5. Set up a Fun Account: If you want to try to pick individual stocks because you think it’s fun, then do so. Take 5-10% or so of your liquid net assets — an amount that if it goes to zero won’t affect you — and have at it. You can do that all you want, as your “real portfolio” keeps compounding over time.

The bottom line is should not let FOMO tempt you into doing something against your own long term interest.




The Basic Dumb Contours of the GameStop Trade (February 5, 2021)

Who Are Robinhood’s Customers? (February 4, 2021)

A Minor, Fascinating but Irrelevant, Made for TV Storyline (February 2, 2021)

Counter Party Risk (January 29, 2021)


GameStop Mania Likely Won’t Happen Again. Here’s How To Invest Wisely
Chris Arnold
NPR, February 5, 2021






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