The year 2022 is drawing to a close, and many investors are sitting on some steep losses. The losses are so big that psychologically, some investors may be unwilling to accept them and remain invested in assets that have suffered extreme losses instead of selling them and moving on to other investments. Investors in Cathy Wood’s ARKK Innovation fund or cryptocurrencies come to mind. But trying to wait it out may be an even bigger mistake than investing in these assets at the wrong time in the first place.
I agree with much of what you say, but your math is misleading. Yes, it's true that even if you have 20% returns, it will take a while to catch up with an investment that has 10% returns if you start off in a bigger hole. But the hole has already been dug. Investors in ARKK and Bitcoin have $x dollars to work with. Period. So where should they put it? In an investment that will gain 10% a year or 20%? The math should start with the same starting balance if you're addressing someone who has already lost a lot in ARKK or Bitcoin.
If you're trying to dissuade people from putting a lot of their money in high-risk, high-volatility stocks in general, then I agree. But once people have done that, and the bubble has burst, I think it's understandable why some people think the high-risk assets might outperform in the next 5-10 years. Of course, they might not. Some of the assets may turn out like Cisco or FTX: so grossly overvalued that they never recover.
Overall, I agree with you, especially your second conclusion. Even for those who are trying to recover and who believe their high-risk asset will gain 20% per year, they should understand there's a reasonable chance they will not see such gains. The S&P (or "boring" individual stocks) are a much safer bet and most of your money should probably be in those investments, not the risky ones.
I hold some ARKK so your article is more than academic to me. You make your case and I am going to half my position, take the loss but still have a little bet on the lightning strike.
Thank you for torturing the English language; this article is great. :)
I agree with much of what you say, but your math is misleading. Yes, it's true that even if you have 20% returns, it will take a while to catch up with an investment that has 10% returns if you start off in a bigger hole. But the hole has already been dug. Investors in ARKK and Bitcoin have $x dollars to work with. Period. So where should they put it? In an investment that will gain 10% a year or 20%? The math should start with the same starting balance if you're addressing someone who has already lost a lot in ARKK or Bitcoin.
If you're trying to dissuade people from putting a lot of their money in high-risk, high-volatility stocks in general, then I agree. But once people have done that, and the bubble has burst, I think it's understandable why some people think the high-risk assets might outperform in the next 5-10 years. Of course, they might not. Some of the assets may turn out like Cisco or FTX: so grossly overvalued that they never recover.
Overall, I agree with you, especially your second conclusion. Even for those who are trying to recover and who believe their high-risk asset will gain 20% per year, they should understand there's a reasonable chance they will not see such gains. The S&P (or "boring" individual stocks) are a much safer bet and most of your money should probably be in those investments, not the risky ones.
I hold some ARKK so your article is more than academic to me. You make your case and I am going to half my position, take the loss but still have a little bet on the lightning strike.
Great article, thanks!