As most investors know, the market is filled with rules of thumb, colloquialisms, and snippets of advice designed to help you remember key principles and become a better investor. But how well do these axioms hold up in the current market environment? Let's take a gut-check on some of the most popular ones.
The Market Climbs a Wall of Worry
This classic saying links the equity premium that investors earn for taking on risk. Right now, it has never been more accurate. There are countless concerns: multiple wars, inflation, high valuations, presidential assassination attempts, oil prices, interest rates, earnings reports, AI spending, and AI disruption. Yet most markets hit new record highs this week, as investors collectively reason that with so many worries now, there may be fewer in the future. Optimists continue to make money.
You Can Never Make 10,000% If You Sell After 100%
Mathematically, this is 100% accurate. Selling a stock after a double seems great, but if you are holding the next Apple or Alphabet, you might regret it. A real-life example: I bought Nvidia in 2016. It soared, and I practiced prudent portfolio management by selling shares along the way. This week, the stock hit an all-time high. Every share I sold was wrong from a profit-maximization perspective. In North America, over 1,900 stocks have risen more than 100% in the past year alone, with 70 having market caps over $50 billion. If you own such a stock, think twice before selling too much.
Bulls and Bears Make Money, but Pigs Get Slaughtered
This rule is always true. Greed wipes out portfolios. Today, zero-day options, leveraged ETFs, margin debt at records, prediction markets, and cryptocurrencies with 40x leverage are all signs of excessive risk. There will always be greedy investors and ways to lose money fast. Keep an eye on leverage and stick with quality. Markets are high, but drawdowns of 30% or more are common. Use caution—the market is not a lottery ticket.
A Concentrated Portfolio Is the Way to Get Rich
This is true in theory but hard to enact. Elon Musk, the richest person, will likely have over two-thirds of his wealth in just two companies when SpaceX goes public. But such concentration is tough for ordinary investors. Musk could lose hundreds of billions and still feed his kids. For a Canadian saving for retirement, losing half of a $350,000 RRSP would be devastating. Be reasonable: six stocks are probably too few, but 50 stocks will essentially track the index, not deliver above-average returns.
