In any endeavor in life, most people will fall on a bell curve. 10% will consistently be very poor at it. 80% will be roughly average, and 10% will combine the perfect attributes of natural skill, determination, training, and focus to excel. Unfortunately, in investing, there will always be that 10% that consistently lose money. They buy tech stocks in 2000, houses in 2006 and bitcoin in 2017. But because investing is a very emotional business, the 80% that are in the middle of the bell curve usually lose money as well. It doesn’t actually work out that 10% lose. 10% make a lot, and 80% make an average amount. In this business 10% make money and almost everyone else loses.
Which is weird because everyone understands how to make money. You buy low and sell high.
It’s really quite simple, other than the fact that our emotions try very hard to prevent us from doing that. While there are literally thousands of ways to make money in the market, I think the most dependable way to make sustainable long term gains is to be a contrarian. The problem is that almost no one can actually stick to a contrarian strategy in real time. Contrarian trades are difficult. It’s hard to time major trend changes. And if you don’t time it perfectly then you end up taking a drawdown while you wait for the bottom, or you end up selling too soon and watching the market continue higher without you. This is painful enough by itself but you also have to endure a mistimed entry while the rest of the herd just keeps running with the trend. The herd is making money while you look like an idiot, waiting for a trend change that in real time your emotions tell you will never come. Ultimately the herd runs off the cliff (they must if 90% lose money) and the contrarian ends up making money (usually a lot of money), but that isn’t any consolation while one waits for a contrarian trade to begin paying off. For most people the urge to rejoin the herd is just too powerful to resist and contrarian trades just too hard to hold onto.
