Why investing for short term profit is so difficult


When the media and the media cling to a story, sometimes it is easy to follow the story and let it dictate your investment decisions. But focusing on the short term can have dire consequences. Motley Fool contributors Jason Hall, Jon Quast and Nicholas Rossolillo discuss the issue of investing this way (although sometimes trading can work in the short term) in this Motley Fool Live segment of “The 5” recorded on October 1st.

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Nicolas Rossolillo: Binary results. Investment error related to this. I’m going to call this an investing mistake, not because I didn’t make any money from it, but because of what it did to me mentally. Remember when the price of oil crashed, not this last time during the pandemic, but in 2015, 2016.

Jason Hall: In mid-2014, oil only set the scene. Crude oil was over $ 100 a barrel. So it wasn’t. [laughs]

Rossolillo: So it wasn’t. In fact, since we are sharing graphics here, I have stepped back. Here, 2014, 2015 I just took. I remember having.

Room: I love this painting.

Rossolillo: It’s a cool graphic. I started buying energy stocks and ETFs like here, not because I liked the industry, but because I am [laughs] Reading this, analysts note at one point that a barrel of oil could be bought for less than a dinner for two at Olive Garden. I remember reading this analyst’s note, “Oh, man. I’m going to buy oil and power,” and it worked for a while, I made some money. But I went from an investor to a swing trader, and I wasted so much time, so much mental and emotional energy on it. Then, in a very short time, it stopped working. Because, as the graph shows, energy is no longer a long-term growth industry. I had to constantly look for ways to love to get out of it and move it somewhere else. It was not an investment, it was a profession. That’s why I’m going to call it a mistake.

Room: It was a total misallocation of resources that you are.

Rossolillo: Exactly. Jon was talking about the binary result. What I was constantly stuck with during that time was OPEC, and now what we call OPEC + as Russia and even North American power producers have gotten involved in trying to come to an agreement. , to restrict supply in order to raise prices. It was a terrible thing to have to be glued and worried all the time in the hope that the trade would pay off.

Room: Yes, and it’s a booster especially for something like commodity prices, unless you have specialist knowledge and the time to devote to it, it’s a great place to turn a small amount of money. into an even smaller amount of money. I have a similar example that comes from the energy industry, but it’s natural gas and it’s a company called Ultra Petroleum.

I guess they’re still there. Has gone bankrupt at least once, maybe twice. My thesis for owning this business for a few years was really that they have really cheap gas assets, natural gas assets in Wyoming, and an area called Pinedale that was just super cheap to produce. The problem was, their record was a mess. Gas prices continue to decline for an extended period. Their gas was orphaned. There was not an excellent infrastructure to bring their gas to market. They could only extract small volumes from it. They couldn’t get out enough to get out of their cash crunch situation.

Here’s the banana thing about this one guys. Nick loves you, because you are a professional and can spend time working on some of these opportunities to find a way to make some money. Most people don’t have the time. It became evident that the company was bankrupt. I had bought some shares, I added my position to two dollars a share, or maybe 75 dollars a share, thinking they weren’t going to go broke. Then the word came, I was like, “Yeah, they’re going to go broke.” They hadn’t officially announced it yet, but word got out, the action fell apart.

I’m like you know what I’m not going to do anything. I have already lost my money. I’ll just leave it in my portfolio as an object lesson. It was just going to go away. Then the company was successful in getting its lenders to agree to new terms after bankruptcy, and the shareholders did not dilute themselves. I was up 70% on this stupid investment mistake because I got lucky. But luckily, I realized that there was still a giant error. That I was just lucky and not that I was smart. Or not that I found an advantage. I just got lucky and managed to make some money on an investment that I should have lost 98% on. Again, it’s knowing where you have an edge and knowing where you don’t, that’s the big lesson I learned there. It was really precious. I happened to make some money.

Jon Quest: It’s really good Jason. I think one of the most important psychology lessons you can have as an investor is to always remind yourself that you are not as smart as you think you are. [laughs] Because when you think you’re as smart as you think you are, that’s when you over-allocate, put 50% of your wallet and go bankrupt, for example, and take unnecessary risks. that you shouldn’t take. When you have that good dose of self-doubt that’s what I think is going to happen, but I could be wrong, you approach your wallet with a bit more a cool head.

Room: Exactly. It is one of the few things in life where you can have a terrible process which can sometimes lead to a great result. In fact, a great result comes early. This prepares you for failure later. The bottom line is, if you’re not good at basketball, if you’re not a good athlete, Michael Jordan is going to destroy you every time. You will never win. [laughs] With stocks, you could do something really stupid, and still go out and make some money every now and then.

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