If I am retail (Millennials, Generation Z or Silent Generation)
where do I invest my money?
Banks are not giving me much interest
Real estates require a lot of money upfront
The only option I have is the stock market which requires a little capital
and I can invest big with margin and actually I can day trade this stuff too right now as I am at home.
Which stock should I buy then? Let me think.
Due to COVID-19, everything came down.
Obviously, by looking at FAANG, they are rising and everyone is/going to use WhatsApp, Facebook, Amazon and Netflix during these lockdowns. It makes sense for me to invest there as historically the last 5 years technology was going up anyway and people are right now locked into their houses and without jobs. So they will continue to use these products more and more to stay connected with family and kill their time and thus they will help to increase revenue for these companies.
But wait, there are some good companies and they are the foundations of the economy (manufacturing, industrial, food etc) (Economical stocks like CAT, ROST, MCD, ITW, PH, UNP, CSX etc…) and those stocks are down too. Can I put some more money there?
Look I have to gamble and I have little capital of my own and rest came from Federal reserve or government as a stimulus package. I want to get as much as profit as fast as I can and make a good amount of money in a short duration because I do not have time later to look after my stocks when I go back to the job after COVID-19 is over.
Fast money can be made only in technology. Foundations of economy based stocks are slow in moving.
What about my downside risk in this case. Well, my downside risk is low in the economy stocks and the risk is high in fast money making technology stocks because they are already high historically. But wait a minute, do i have to lose anything here. Anyway I have only some of my capital invested and the rest of invested capital came from the government anyway and I am sure that FED will do anything in their power to avoid market crash. So it makes sense for me to invest all my eggs in FAANG compared to economical stocks as i have nothing much to lose here. The majority of invested money is anyway not mine and whatever is mine already came from market in last few months. so it is market money anyway.
Ok so now I decided to put everything in FAANG or technology stocks.
I am so happy that I made a good choice and now I am making money and watching my stock account growth. I think I will make million or a couple of thousand dollars easily at this rate. I am glad that I made a good choice here.
—————————Ripple effect later on——————————————————-
Fine right now, FAANG is fueled by COVID-19 due to people staying at home and money financed by the government and low margin requirements in stocks thus flow of money goes to FAANG lifting FAANG Stocks in prices. At the same time, economical stocks that run the economy and provides a job to people which in turn feed their families, are struggling to find capital and to run their operations.
What will happen when Covid-19 stuff is over, people go back to a job but wait a minute, there are no jobs because when those economical companies needed a money, people (retail) did not finance them by not investing in their stocks but they choose to go with Tech companies. Now those economical companies are hiring less or some of them went bankrupt = not many jobs left compared to it used to before COVID-19 = no food for many families on the table = pull out of money from technology stocks = FAANG goes down = Tech goes down = market goes down = default on their personal loans = financial companies will get hit and may go bankrupt = real estate sector will get hit = Utilities companies will get hit = people will spend less and start saving more = consumer good sector companies will get hit and we can have a market crash.
In the end, people or news will blame FED or technology stocks for the market crash. The point is: it is not FED or Technology stocks but it is us who made a selfish or bad choice, to begin with.
————————————————My two cents———————————————-
Do not do emotional investment. If you do then use a stop loss.
Pick sound companies at the right value and stick with it forever or until you get a 500% return on your investment.
There is no quick way to get rich. Whatever goes up fast, it comes down even faster then it goes up.
Do not get frustrated by watching the market going higher thinking you are not part of it. Preserved capital will come in handy in times when no one has money left to invest. You will become a king at that time and will have a choice to pick the best companies at bargain prices.
