Greed and Rebalancing
In the stock market, everyone has the opportunity to make a large sum of money in a short period, whether due to luck or skill.
For example, $ARK Innovation ETF(ARKK.US$ , $NIO Inc(NIO.US$ , and $Tesla(TSLA.US$ surged in 2020 due to market stimulus, or the continuous rolling of options on $NVIDIA(NVDA.US$ this year. Sometimes, it may take only one month to earn income equivalent to several years of work.
Suppose you have $100,000, and with the blessing of luck, you grow it to $1 million. Such success may lead you to stick to your past path and continue fully investing in options. If successful again, your account may rise to $2 million, $3 million, or even $4 million. In this case, you might not need to work anymore. In a hot market, few can resist this temptation because they seem to believe that the market only goes up and never goes down.
However, there is a saying: "Every time I want to make a big move, I always end up being hit hard".
Greed is difficult to overcome, just like it's hard to control oneself when tempted. However, there are risks when making big moves.
Therefore, the "rebalancing" strategy is a more enduring tool, even more important than timing, stock selection, or other strategies. It allocates the funds earned from luck or skill proportionally to $Invesco QQQ Trust(QQQ.US$ , $SPDR S&P 500 ETF(SPY.US$ , or even US bonds or bank accounts. This way, even if stocks like NIO, ARKK, etc., drop by 70-80%, or if options go to zero due to stock volatility, you still retain most of your profits.
However, it's difficult for people to overcome greed because the prospect is indeed very promising. Just like it's hard to remain indifferent when holding a beautiful woman in your arms.
Instead of testing whether one can resist the temptation, it's better to avoid being tempted altogether. Rather than testing whether one can stay out of the market or refrain from using leverage when the market is unfavorable, it's better to leave the significant profits to family members, parents, etc., for supervision.
By introducing third-party supervision and forcing regular rebalancing, even if your high-risk investments fail, you have the capital to rise again.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
Some famous words of Buffett. I hope it's useful to you. : )
209Followers
4Following
4629Visitors
Follow
Teck Wang Pang PaPa : Or like netflix when they almost burst till now.