I’ve said this at least a dozen times in the past and I’m likely to repeat this a least a dozen times in the future. Knowledge is useless if not applied, so no, knowledge is not power despite millions of people loving to repeat this meme. Only knowledge, when applied, is power, and even then, this is relevant only for truth, not disinformation. And much too much investment disinformation is mass distributed by social media influencers in the financial arena.
In today’s podcast, I discuss my dozens of experiences in which people that tell me they consider all opinions when making investment decisions rarely, if ever, actually incorporate information that contradicts their beliefs into their decisions. Thus, there is literally zero benefit of knowing about contradictory information if one merely listens to it and then completely dismisses and continues to dwell inside an echo chamber. Willingness to listen to contradictory beliefs is completely useless to an investor.
As an example, I once discussed my strong opinion about an imminent silver price move with a close friend of mine that had a considerable investment in silver that wanted to sell after 18-months of investing and being relatively flat in his investment. I told him to wait two additional months, and if it was still flat, then he could go ahead and sell because I saw a strong probability of an imminent steep rise in prices. He said he conducted a lot of research online and arrived at the conclusion to sell because the consensus among online analysts was “gold and silver were dead assets” and that silver prices were going to head much lower. Thus, he said he would be happy to exit at break even. I responded by telling him the following:
(1) The online arena is the worst possible place from which to draw research to make investment decisions, because the most prominently followed analysts are almost always wrong; and
(2) I informed him that I strongly believed he was making a terrible decision and after all, why not hear me out and wait two more months after waiting for 18-months.
Despite the above, he ignored my guidance and sold all of his substantial stack of silver. You want to know what happened next? Within days, silver prices started skyrocketing and increased by 25% within just two weeks.
With BTC, I spoke to many BTC HODLers here in Mexico when BTC was peaking in price above $60k in November 2021. When people discovered I was in finance, they asked for my opinion. I informed them I had a patreon platform and on my platform I was getting ready to tell them to sell (I eventually told my patrons to sell at $66k; BTC peaked a few days later at $69k before plummeting in price to its current level). The reaction of every BTC HODLer to whom I told this information was immediate skepticism and dismissal of my opinion, because every last one of them said “I don’t think BTC is going to crash.” When I asked why, they told me every single BTC analyst with large followings was predicting the continuing procession of higher prices to $100k to $300k by year end.
So here is the difference in how human psychology will determine if you break even, end up with big gains or end up with huge losses. If you state you listen to opposition voices but merely dismiss them completely in your investment strategies, you might as well be completely ignorant of all opposition views, because they all serve your future investment success in the same capacity - none at all. The way my friend above could have benefited from my opinion was to incorporate my contrarian opinion into his exit strategy. He could have said, I don’t understand why you are stating the opposite of what everyone else believes, but because your track record has always been on point, I’m going to give your opinion credibility even though everyone online disagrees with you. So, I will remain in silver, but if it goes down 5%, I’m limiting my losses to 5% and will exit at that time. If it goes up as you say, then I’ll come back to you and you tell me when to exit.
The BTC HODLers that have been skeptical of me the whole time could have said,
Okay, I went and checked your track record. I discovered you stated to buy at $20k in November 2020, sell at $58k in April/May 2021, and buy at $29k in July 2021. Now you are getting ready to issue a sell opinion above $60k here in November 2021. So even though the entire world of BTC analysts says you are wrong and that BTC is going to continue exploding higher to $100k to $300k by the end of the year, and I no doubt, do not want to miss out on further gains of 67% to 400% that the entire community says is coming, because I’m a rational human being, I’m going to incorporate your opinion into my strategy. If BTC continues to head higher, but then starts selling off quickly as you think it will soon, then I will exit when the price descends back down to $60k. That way, I can still keep the massive upside that I and everyone else still thinks is coming, while being protected to the downside.
Lessons of the Story
This is not about whether my financial analysis is right or wrong. Though in the above examples, I was correct and the consensus was madly wrong, I will be wrong in the future as well, though when I’m wrong, I’m usually mildly incorrect in my assessments, off by 5% or 10%, not by 90% as many cryptocurrency, gold and oil analysts have been in their price predictions. Once one provides multiple price predictions that are off by 50% and more, as an analyst, one should lose all future credibility. Human psychology instead keeps millions coming back to embrace these analysts for more poor analysis while they continue to reject other, much more credible contrarian analysis. Most people that state they read contradictory opinions never incorporate them into modification of their investment strategies. And this is when knowledge of contradictory opinions becomes entirely useless.
Only when knowledge of well-formulated contradictory opinions issued by analysts with solid documented track records is incorporated into exit strategies is that knowledge ever of any utility. Don’t let the inflexibility of your brain (i.e. hardened neuroplasticity) cause you to exit at break even when you should have exited at significant profits, or worse yet, to exit at massive losses when you should have exited at significant profits.
There will be times when analysts with very strong track records are providing contrarian opinions to every other analyst out there and you will incorporate their analysis into your exit strategy and your exit strategy will never be executed because this analyst will be wrong. That analyst in the future will include yours truly. However, the result of doing this is “no harm, no foul”. But understand the below.
If you never incorporate contrarian opinions from solid analysts into an exit strategy for an investment you hold, you are NOT an investor. YOU ARE 100% A SPECULATOR and being a speculator is how you turn gains into losses, not just once, but for your entire life.
PS. In the podcast above, I stated that there were only 2 memberships still available of the new ones I opened up at the Top Supporter level on my Patreon platform. As of this morning, only one was remaining, so to be fair, I opened up one additional membership this morning at that level to match the 2 that I stated were still available in the above podcast. After my Benefactor and Top Supporter level memberships on my Patreon platform reach capacity, no new memberships will be opend up for at least 45 more days.
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