Few things are more frustrating in investing than when you feel like you are missing out on an opportunity, which often can occur in speculative bubbles, so I just wanted to share a fun one with you. You see people making money engaging in an activity, which you might believe intrinsically to not make sense, but it is working for them. It is not uncommon for people to chase those big moves and unless their timing is perfect, it can end up quite poorly. If this has happened to you before, don’t feel bad, as it even happened to the great mathematical genius Isaac Newton.
Above you’ll see a chart of the South Sea Bubble and Newton’s investments. As you see, he got in early and did quite well, only to see the stock rally dramatically higher, developing into a mania. Fear of missing out caused him to re-enter with way more capital, only to see that bubble collapse, eventually forcing him to go broke. This is a story as old as markets are. This is why when we invest we always want to have an understanding of intrinsic value. What is this business or security worth? What is my margin of safety? These calculations are done via a careful analysis of the financial statements and business prospects. Those are what give us confidence in making buy, sell, or hold decisions, which leads to long-term success. Over the short-term, anything can happen of course, but these are the tried and true methods of successful long-term investing.