Why Trending Stocks Are So Dangerous

Investing Psychology #4: The Comparison Trap

This is a Wise & Wealthy Academy post. Every week, I publish a new training that focuses on a single idea from one of four areas: Clear thinking, personal execution, career antifragility, and investing psychology.

Let me ask you something.

Have you ever bought a stock or an asset because you saw someone talk about it online?

I bet the answer is yes. Because I’ve done it. Almost everyone I know has done it.

Here’s the follow-up question: Do you still own it?

Probably not.

A few years ago I got caught up in the meme stock craze. GameStop. BlackBerry. Nokia. Everyone was talking about them. The energy was electric. People were making life-changing money in days. I got in on that too.

You know how that ended.

More recently, I bought Hims and Hers stock. A lot of people were talking about it, the numbers looked decent on the surface, and I thought, why not take a stab at it?

Years ago I read that the great Stanley Druckenmiller often buys a stock that looks interesting and then researches it after his purchase, not before it. So he avoids analysis paralysis.

If he doesn’t like it or the stock moves against him, he sells. I’ve been doing that too occasionally with my trades. I like that strategy because it increases the stakes. But it’s risky.

Pretty soon after I bought HIMS 0.00%↑, I realized it wasn’t my kind of company at all.

No strong competitive advantage. Not a business I actually understood or believed in. But by the time I figured that out, I was already down.

That’s the comparison trap. And it’s one of the biggest threats to your long-term investing success.

I talk about how I handle it in this video:

Why It Happens to Everyone

The comparison trap isn’t a sign of stupidity. It’s a sign of being human.