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What I Learned Watching Bubbles: Better To Be Conservative Wrong

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Did you see the commodity bubble? It inflated and deflated in a couple months leaving some people very rich and others very not rich. It also left even more people entirely unchanged because either they didn’t go in or they were in already and didn’t get out. That’s the third lesson I learned, if you’re going to be wrong (or miss out on something) it’s better to be conservative wrong. If you’re going to miss a bubble… it’s better to heed lesson $3:

Lesson #3: Don’t Think Of It As Not Winning, Think Of It As Not Losing
How many people made a fortune by getting into the dot-com market early and getting out early? Now how many people saw Jeff Bezo’s smiling face peering through a box on Time magazine when he was named 1999 Person of the Year, bought Amazon.com stock at $113 and watched it tumble to the current price now of under $35? I bet you group two is a lot bigger than group one. Would you have believed the pundits when they said to get out when other pundits were saying get in?

No one has ever made any money sitting on the sidelines, unless you’re Philip Rivers of the San Diego Chargers, but they’ve also been spared the heartache of losing money. A lot of money. For ever baller in the NBA, there are a hundred gas pumping almost-made-its who made the wrong bet. It’s better to have not won a million dollars than it is to have won it and then lost it. This isn’t love, this is money.

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3 Responses to “What I Learned Watching Bubbles: Better To Be Conservative Wrong”

  1. I’m not sure if I would characterise the recent surge in commodity prices and the more recent retreat as a bubble and the bursting of a bubble. Only history can really judge whether the surge in a broad range of commodity prices over a period of 2-3 years was a bubble or a cyclical move in prices largely driven by supply and demand factors that may have extended a bit too far. The answer may also depend on your definition of “bubble”. It is at least arguable that the upward price moves in a number of commodities (oil, gas, uranium and base metals in particular) were a simple case of rising demand and inelastic supply that was unable to meet the new demand. Most of these commodities are still a lot more expensive than they were when the upward price movements began.

    Regardless, the point is a very good one. Joining a boom too late may be (and often is) worse than sitting on the sidelines. A number of people have made the point that avoiding or at least minimising losses is a characteristic of successful investors.

  2. Debt Free says:

    Ah, but how many bought Amazon when it was around $7.00 in mid 2001 after the crash, then rode it up to $60 in late 2003? An even smaller number, I’d bet. If you did, were you the buy & hold type of investor or did you get out at that second peak? At today’s close of $36.80, you’ve lost about 40% since the $60 peak almost 3 years ago.

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