The market is testing your character

Do you have what it takes?

The last week was fun!

Negative short-term price movements are a great way to test your character.

Do you have what it takes to pick individual stocks?

The stock market decline even woke up the famous “guru” Robert Kiyosaki.

He’s been predicting a market crash for 15 years now (although, without much success).

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If you zoom out to the performance of the last 5 years, it doesn't look that bad. The price today isn’t that much different than two months ago. Where was Kiyosaki back then?

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The explanation is very simple.

The media often emphasizes negative news because it attracts more viewers/readers. So, sensational and alarming headlines are more likely to stand out and capture interest. Higher engagement translates into more clicks, which in turn drives higher revenue.

In addition, humans have a cognitive bias, where more attention and weight is given to negative events (such as market crashes) than to positive events. We don’t get worried by the possibility of gaining 100% but of the possibility of losing 100%.

That means we live in a world where many sources compete for your attention and you will be exposed to exaggeration and predominantly negative events, to which you pay more attention (due to cognitive bias).

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Navigate yourself.

If you followed Kiyosaki over the last decades, you would’ve missed plenty of opportunities. Sure, you can blame him, but ultimately it's your responsibility to navigate through the complex world, and the information, yourself. Independently.

Don’t get me wrong, there will be a time when he’ll be right. As the quote goes “Even a broken clock is right twice a day“.

There is a positive correlation between risk and reward: significant gains often come with higher risks. The opposite is also true - You cannot expect significant gains, without taking risks.

Oh, and there are plenty of risks:

• Recession

• Inflation / Deflation

• Change in interest rates

• Credit risk

• Political risk

• Regulatory risk

• Operational risk

• Technology risk

• Geopolitical risk

The list goes on.

As mentioned in the beginning: Negative short-term price movements are a great way to test your character.

Do you have what it takes to pick individual stocks? Can you make decisions yourself, without being impacted by the exaggerating headlines?