On Opinions
Retail investors give far too much importance to the opinions of other people and doubt their own process when they hear contrary opinions.
In 2018/19, I had come across an investor on a podcast who shared his investment thesis on why he had shorted AMD - Advanced Micro Devices. AMD was one of the stocks that I was long at that point.
The investor’s thesis was that there were serious security flaws in AMD chips and that the market will react once it understands the seriousness of security loopholes in AMD chips.
The hardest thing to do at that point was to spend some time to research AMD again and see if the short thesis had any substance.
The easiest thing to do was to believe in the professional investor, assume that the professional investor knew more about AMD than I knew.
Guess what did I do?
I did my research. Found that the short thesis didn’t have any meat and I increased my position in AMD.
I wish the above were true. What actually happened was that I took the easiest option or the path of least resistance just like any other human being would have done.
Over the next few weeks I sold my AMD position without doing any research.
My thinking was that the professional investor knew more about AMD than what I had known. I was giving more weightage to the investor’s opinion and at the sametime discounting what I known about AMD and discounting the time I had spent before buying AMD.
AMD would go on to become a 3 bagger in the next couple of years.
I had learnt a very costly lesson -
“Opinion is really the lowest form of human knowledge”
This happens to us on a daily basis. We tend to give far more weightage to the opinions of other people. We are easy stock tips from experts on news channels instead of putting in the hard work. There are plenty of YouTubers who are laughing their way to banks making videos on “market crash” feeding the confirmation bias of retail investors. Fear mongering is a great business - gets a lot of eyeballs and eventually plenty of ad revenue.
Do you blame the retail investors for searching market crash too many times or Do you blame the YouTubers for being smart enough to find out what are the most searched keywords and exploiting those fears? Think.
Fast forward to 2020 and a similar situation unfolded in another position that I held- Life 360 $360.AX. This time there were two professional analysts on a popular investment news channel in Australia and both of them, dressed in their expensive suits, dismissed the company as not having any moat or competitive advantage. And they didn’t stop there. They had some more nasty “opinions” about why the company wouldn’t do well in the next few months/years.
What did I do this time?
I held on to my position and it went on to become a 2 bagger in the next few months.
Trust your own process.
Don’t take the easy route. Do the hardest thing.
And remember “Opinion is subject to error, but knowledge is not.”
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