Amazon stock went up 100x in the past 15 years. Any idiot could have made money on it. Yet I managed to accomplish the exact opposite 😆

Here’s how it went down.

It was the fall of 2005. I was in school, penniless, but managed to save $2000. I just read the first investment book in my life, Peter Lynch’s One Up on Wall Street. He said you should invest in companies you know and like. Makes sense, right?

Amazon was the company I used the most. Prime was just launched and I loved it. Subscription was a new thing then.

But $AMZN had been going down for over a year. I was afraid to buy. In November 2005 though, it had a big tick up. I immediately felt more confident about it (though nothing about the company had changed. Ha!). I bought 40 shares at $45.

Sadly, the bounce was short lived. The stock went straight down almost right after I bought. I was increasingly depressed about $AMZN as the months went by. Six months later, I had lost all my confidence about it.

In July 2006, the stock dropped 30%. That did it for me. I spotted another stock I wanted to buy (Was convinced it would outperform Amazon, though now I can’t even remember what it was).

So I sold my 40 shares of $AMZN, at $30, and lost $600.

In other words, like the legion of dumbasses before (and after) me who fancied themselves a market-beating genius, I bought the local top and sold the local bottom.

If I had held on to my 40 shares, the $2000 would have turned into $140,000.

So what can we learn from this?

1/ Conviction is king.

If you’re betting on the right horse, the short-term noises don’t matter.

But that’s much easier said than done. Life is full of drama when you’re watching it tick by tick. The human psychology is such that most people would do the opposite of what we should in the market.

Conviction is the antidote to your (unhelpful) investment psychology. If you have conviction, even if you are wrong half the time, you still do better than those who listen to hearsay and get easily shaken out of their position.

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2/ Timing the market is futile.

Like many people, even though I didn’t intentionally try to time the market, that was essentially what I ended up doing, and lost.

This is something all humans instinctively want to do, when they feel like they are not in control of a situation. You have to fight that instinct.

If I had known that Amazon would 100x from where I bought, of course I wouldn’t have behaved that way.

So the behavior of trying to time the market is in fact a sign of lacking conviction. i.e. you try to control something because you feel no certainty about it.

3/ You have to earn your conviction.

Peter Lynch advised most people to invest in companies they know and like, because this is the easiest way to have a bit of conviction.

But simply knowing a company as a customer would not give you nearly enough conviction when push comes to shove. You really have to do your own research on everything about a company and treat it like a commitment.

It’s for the same reason that people date before they get married.

Conviction is to say you will be there “for better or worse, for richer or poorer, in sickness and health…”. If you don’t know someone enough, even if you make that vow today, the union can easily fall apart at the first sign of trouble.

There are a lot of parallels between market and life. Learnings in one will help you do well in the other, too, if you’re willing to look for lessons everywhere.

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