Why Your Investment Strategy Is Probably a Fairy Tale
1. The Passenger’s Dilemma
Your ego is your portfolio’s greatest enemy. Most investors operate under the delusion that they are the drivers of their financial destiny, possessing some “variant perception” that allows them to outsmart the market’s collective intelligence.
We are never drivers; we are only ever passengers – no decision we make has any bearing on any market we trade. No matter who engorged our ego might be.
2. The “Supermarket Fallacy”: Why Stocks Aren’t Chocolate
Retail investors are prone to a fatal “false equivalency” I call supermarket thinking. In a grocery store, if a block of chocolate is $5.00 on Monday and $2.50 on Tuesday, it’s a bargain. The product hasn’t changed, and the demand remains stable.
But the stock market is not a supermarket.
When a stock price collapses, the environment and the demand have fundamentally shifted. A falling price isn’t a discount; it’s a warning.
We circle back to the idea that the market will tell you everything you need to know – you just have to learn how to listen.
Think of it this way. If I went back and saw that my block of chocolate was now $2.50 but was full of weevils… it represents no value to me because it’s effectively damaged goods in the eyes of the market.
The market has already looked at the “chocolate” and seen the weevils. While everyone is busy hunting for a bargain, the market is busy pricing in reality. The shift from “bargain hunting” to “recognising market consensus” is the hardest psychological hurdle you’ll face, but it is the difference between a strategist and a victim.
3. The Infinite Value Paradox: The Fatal Logic of Averaging Down
The traditional “value” argument is built on a profound logical absurdity. Value investors claim that as a stock’s price falls, its “intrinsic value” increases. This leads to the toxic practice of “averaging down”—throwing good money after bad to lower an entry price.
Follow that logic to its inevitable, ridiculous conclusion: if value increases as price falls, then the moment of “Maximum Value” is the moment the company hits zero. According to this logic, you should wait for a company to go completely bankrupt before buying it, because that’s when it’s most “valuable.”
Averaging down isn’t a strategy; it’s a symptom of an ego that refuses to admit it was wrong. It is an attempt to bully the market into agreeing with your initial assessment, even when the data says you’re failing.
4. The Power of Binary Thinking: Data Over Narratives
Trading decisions should be binary in nature and therefore reflect a very binary form of language. This means ill-defined expressions should be banished from your trading plan.
It is surprisingly easy to build a series of sequential logic statements that lead to a binary conclusion: buy, sell, or stand aside. As an example, consider the following three questions:
- Is there more red than green on the chart?
- Has price broken through a known level of support?
- Is the price currently below its moving average?
If the answer to these is “Yes,” you sell. No stories. No excuses. No waiting for the “fair value” to manifest.
The basic premise is very simple and can be summed up in four words: Buy strength, sell weakness.
5. The Hard Truth: Your Opinion Is Worthless
This is the pill most investors can’t swallow: your opinion is bullshit, and my opinion is bullshit. The only opinion that carries any weight is the market’s.
If you think a stock is worth $20 but the market is paying $10, you are wrong. It is that simple. If nobody else wants the asset, what “special knowledge” do you think you have?
Do you really believe you’ve discovered something magical that thousands of professional participants missed?
That’s not insight; it’s arrogance. “Fair value” is whatever the price is on your screen right now. Arguing with that price is like arguing with the tide.
6. Moving Beyond the Story
The funds management industry wants to sell you a comfort blanket of stories and “relative value.” The market doesn’t care about your book report or your “structural premonization” theories.
It only cares about the price.
