New Investors, Get a Meme Portfolio
Say you wake up one day realizing that Tesla will be the greatest company in the United States within two years. You decide to take action before the opportunity slips away. You sell off your index funds, rollover old 401ks, and put everything into Tesla with hopes of 4Xing your money. After two years, you learn that your success is largely out of your control. Elon Musk's tweets, natural disasters, international conflicts, extraterrestrial visits, and several random events that aren't worth quantifying play a role in the outcome. Different people who had that exact thought could end up with entirely different outcomes depending on when they initially had that thought and how they behaved afterward.
Multiple studies have shown that investors that set it and forget it typically outperform those that keep tweaking their portfolios. But staying steadfast is increasingly difficult in the age of information overload. Nowadays, it seems like every investing focused youtuber is promoting a list of "top 5 stocks to watch or buy this month" which is ironic. If the stock is so great, shouldn't we be holding it for years? If a stock appears on the January list but not on February's, is it time to sell? If so, why buy the stock in the first place? The fact is that those lists and exaggerated titles get clicks and views for the channel. As the viewer, you also get something in return. You get to be proven right if you make money, and you'll find some excuse if you don't.
Asking for what companies to invest in is simply asking to lose money.
— Tolu Salako (@tolusnotes) August 20, 2020
If your goal is short term fun, then go right ahead. Buy and sell as those youtubers instruct. It'll be fun. It could get costly, but at least it'll be fun. If your goal, instead, is building wealth or saving for retirement, then you need to let that money compound on its own. It'll do just fine without you. If you'd like to have fun while being responsible, then you need a meme portfolio. Here's the elevator pitch.
Though your money could be working hard on its own, life is too short and you want to have fun now. When you've tried paper trading, but it doesn't fill the void. Introducing the meme portfolio - where money translates to fun. Jokes aside, the meme portfolio can act as a bastion for your real portfolio. It can ultimately help you reach your long term goals by absorbing all the short term pressure and behavior swings that plague human investors. But there are some rules.
Cap Your Account Balance
Picking only winners is impossible. Doing so repeatedly requires a time machine. If you're like me and can't afford one, then you should periodically transfer gains out of the account. It may be a meme portfolio, but taxes are real. You should also buy someone a nice lunch from time to time. Chances are you'll remember those experiences more than the actual win.
Cap Your Bet Sizes
If you want to get fancy, then consider capping your bet sizes also to avoid complete ruin. Sure, 10Xing $10k is better than 10Xing $1k, but $1k times 0 is not as painful. Read up on the Kelly criterion for a probabilistic approach to bet sizing.
Use a Meme Brokerage
If you're investing for the long-term, get an ugly account. Modern apps such as Robinhood are designed for you to keep them open. The sleek UI, account balance animation, and the gamified interface is designed to keep you hooked and active within the app. If you're investing for the long-term, these features work against you. But for your meme portfolio, they're perfect! Your wins look and feel so much better, and your losses won't even feel real.
Call It What It Is
It's speculating. Try not to convince yourself of some innate skill you possess. Playing with your money is one thing, doing the same with your self-esteem is entirely different. Short-term trading is not investing. The investing youtubers selling courses and events won't have to if they could just get rich trading. I'm not claiming that there isn't any money to be made in short term trading. There is. It simply won't make you rich in the long run.
Other than saving you from yourself, a meme portfolio can also teach you about various cognitive biases. It's a great test bench for new investors to hopefully learn what to avoid moving forward. If you plan on speculating regardless of the account, you might as well do so in a somewhat controlled environment.
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