When you see headlines like, “Nvidia becomes world’s most valuable company…” or read that a few stocks are responsible for most of the market’s gains… or see some newsletter bragging about a X,XXX% return on a single stock pick… It’s natural to wish you could go back in time, invest in a “sure thing,” and ride the escalator all the way to the bank. But that just isn’t how investing works. (By the way, Nvidia experienced the fastest loss in history pretty quickly after reaching the top spot.)
There are two hard truths we want you to remember when you get that FOMO (fear of missing out) feeling:
There’s no such thing as a sure thing. This AI boom has a lot of maturing to do as we have most recently seen in regards to international cooperation and regulation. Timing and value are key factors that will dictate what this ride will feel like over the coming years.
High-flying stocks are very vulnerable to sudden crashes that also hit without warning.
You probably already know all that, but it's easy to let headlines overwhelm logic. Everyone loves a winner, but no one is good at consistently picking them (or predicting the moment when winners turn into losers). Sure, some folks like to gamble big to win big. More often than not, gamblers lose big. (The headlines skip that part, and the losers usually slink off to a corner instead of showing up on the news.) Economists call that “survivorship bias."
It’s when we forget that for every winner, there are many losers. When we draw conclusions from the select few who win big while ignoring the failures, we're likely to make mistakes.
How do we give ourselves the best chance to invest in market winners?
I've got bad news for you: it’s boring and doesn’t make for great headlines. We pick a strategy and stick to it. We diversify. We check in and make small adjustments. Rinse and repeat. There’s no magic to long-term returns. Just patience and consistency.
The good news is that a well diversified stock portfolio invests alongside big winners. And a rebalancing strategy ensures that you sell high and buy low... consistently.
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