The lament of those with the gift of hindsight
“Ah… if only I had bought ABC stock during that massive retracement, I could be retiring now”
“Why didn’t I invest in XYZ stock when it fell 70%. I could have doubled my investment in just a year”
“How stupid of me to have cut my losses in DEF. Yeah it was a death cross but wasn’t that support line just a 10% drop below my cut loss? And the fundamentals were still good. If only I had waited just two years, I could have gotten a 300% return rather than a 30% loss”
How often have we had these kinds of thoughts? Anyone who has been in the market for long enough would probably have had several experiences with these sort of regrets.
The markets that cause us such regrets likely look like these:
Anyone who bought Facebook (FB) stocks during this retracement would have easily made more than 50% return in just over a year.
Of course, this is what we see from our vantage point in the future. What we likely saw at the end of 2018 was probably this:
FB and by extension the other social media were not looking too great in the public’s nor the laws eyes at this time. A death cross, oh no… and definitely downtrending there. Even the 200 period moving average is sloping down. This is going to take some time – or maybe forever!
Apple (AAPL) is another cause for lament…
You could easily have gotten Apple (AAPL) stock for $150 at the end on 2018 and into early 2019. It was trading around that area for quite a while. Now priced northwards of $320, had you made the call, you would have more than doubled your money in just a year.
Some people ask: “Is there a way to double your money in a short period of time?”
Answer: “Yeah there is. Buy Apple stocks in December 2018, hold it till 2020”
Of course, making the decision to buy in at that time might not have been so easy. While with the gift of hindsight we can clearly see the more than 100% rally in 2019, this is what we were looking at at the end of 2018.
First a double top at the (apparent) end of a multi-year bull run (OMG!). Then a death cross (RUN!). Add all the geopolitical stuff that was going on at the time and not-so-great economic data to add to the spice and even if we were not panicking, logic would have dictated that getting out and watching from the sidelines for the time being was the less risky thing to do.
We are humans after all
Lamenting over the past is pretty much a human thing. It is our nature to regret some of the things in the past with our greater wisdom and hindsight looking back from the future.
However some regrets should not be overdone. And should not cause a reaction formation where we act in the total opposite manner when something similar happens in the future.
While in hindsight our decision to cut our losses or be afraid to bottom fish caused us to lose out on some great catches, those same decisions could just as well have saved us a lot of money.
A lesson from Microsoft (MSFT)
Doesn’t that peak in 2000 and the subsequent drop look a lot like the ones we were regretting about so much?
While Apple and Facebook recovered from their fall in about a year, it wasn’t until about 16 years later that Microsoft stock price reached its 2000 peak level of around $60. Yeah today, $60 for a MSFT stock is dirt cheap – not going to get it anywhere.
But for those who got in around 2000 and held on, it wouldn’t be until another 16 years that they would break even. If you don’t mind putting your stocks in the freezer for two decades, then it wouldn’t matter much. I think it was easier to do this in 2000 than it is now when we can look at our portfolio and our profit and losses with just a tap on the phone.
How sure are we that we wouldn’t lose our patience after a few months of looking at a big fat red -50% every day? And it’s so much easier to cut our losses now than it was back then.
So while our decisions or non-decisions for that matter caused us to lose out on some potentially great catches, they could just as well have saved us a lot of money and time.
So… regret a bit – yeah. We won’t learn otherwise. But regret a lot? Probably not worth it.