To The Moon

As 2025 approaches, I've been focusing more on topic about common mistakes investors make and educational content that I haven’t covered before. I hope you continue finding value in them.

Emotional Trade

On Last Wednesday, the market had a decent pullback—nothing too extreme, just a 3% drop, with some stocks falling by 8%, 10%, or even 12%. Personally, I found it quite entertaining, though I shouldn’t say it’s funny. I was more shocked and upset by the reaction of many retail investors. On platforms like X (formerly Twitter), YouTube, and Yahoo Finance, people were giving up on stocks, questioning their investment strategies, and even wondering if they overpaid—all because their stocks dropped.

This is what happens when people get emotional and can’t handle market downturns. The reaction I saw made me realize that many new investors—especially those who entered after 2022 and haven’t experienced a real pullback—are not prepared for a market crash or significant correction. However, you shouldn’t be upset when it happens. You should actually be happy because that’s when money is made—when the market is down and others are selling. If you act differently, buying when others are panicking, you stand to benefit in the long run.

The Cause Of Panic Sell

I’ll dive deeper into that later, but I want to highlight two key reasons why investors panic when the market goes down. The first is the wrong mindset, which I’ll address, and the second is simply that many investors aren’t mentally prepared for stock market volatility. A lot of people enter the market thinking they’ll be the next Warren Buffett and are convinced they’re long-term investors. But when the market drops, they can’t handle it. They start looking for reasons not to buy, like insider selling or worrying about a stock’s future, and they sell out of fear. Buffett has said that if a 50% drop in value causes you distress, you shouldn’t be owning stocks. His own company, Berkshire Hathaway, dropped 50% three times, but he didn’t sell.

The second reason for panic is that many people are just not mentally prepared for long-term investing. As Buffett advised, if you can’t stomach a significant drop in stock price, you shouldn’t be in the market. The key is to know the true value of what you own, so when the market offers you crazy prices—either too high or too low—you can take advantage of the opportunity.

A common issue is that many investors let market fluctuations dictate their emotions. If your stocks drop, you shouldn’t panic or feel bad about it. If you’re confident in what you own, you’ll be better equipped to deal with these situations without losing sleep. The stock market should serve you, not the other way around. This is why understanding what you own and why you own it is so important.

Mr Market Is Not Your Guidance

Another concept that helps in navigating this is the idea of "Mr. Market," introduced by Benjamin Graham in his book The Intelligent Investor. Mr. Market is an imaginary person who offers you daily prices for your stocks—sometimes too high, sometimes too low. Your job is not to listen to him but to take advantage of his irrational behavior. When he offers you an irrationally low price, you shouldn’t panic. Instead, you should see it as an opportunity to buy.

For example, if you’re holding a stock like Hims, which is volatile and can fluctuate by large percentages without any new news, you should focus on the underlying value, not the day-to-day price movements. If you bought it based on solid research and belief in the company’s fundamentals, you should be ready to buy when others are selling, not let price swings dictate your actions.

The best time to buy is when it’s not easy to buy. When the market is up and everyone’s talking about how great everything is, it’s often the worst time to buy. But when the market is down, and people are scared, that’s usually the best time to pick up stocks at a discount. Unfortunately, retail investors often do the opposite—they sell at the bottom while institutional investors are buying.

OXY

Social Media Bullish & Bearish Meme

A good example of this occurred on August 5th when retail investors sold $1 billion worth of stocks, while institutional investors bought $4 billion. Why do retail investors sell when the market is down? Part of it is the influence of social media and the constant stream of bearish content. This creates fear and causes people to act against their long-term interests.

The Twitter Musk

Elon Musk, Tesla's CEO, is renowned for engaging with the public on Twitter. His tweets, whether related to personal matters or Tesla's business updates, have been shown to impact the company's stock price. For instance, posts about Tesla's valuation or upcoming products have triggered notable price fluctuations, highlighting the significant influence prominent social media users can have on market trends.

Instead of looking for reasons to sell when the market drops, try to look for reasons to buy. When stocks are down and the market is uncertain, this is often when you can get the best value. But if you let yourself be swayed by the panic and fear around you, you’ll miss out on those opportunities.

Conclusion

In summary, the key takeaways are that market pullbacks are normal, and it’s important to be mentally prepared to weather those downturns. Understanding the value of what you own and being disciplined about your approach to buying and selling is crucial. And remember, the best time to buy is when it’s not easy to buy—when everyone else is panicking, that’s when you should be ready to take advantage of the market's irrational behavior.

Thank you for reading, and I hope this helps you understand the mindset needed to navigate the ups and downs of the stock market.