It Can Always Get Better, It Can Always Get Worse

Growing up, I played a lot of little league. I was a pitcher on my little league teams. On the mound I would get distraught when I couldn’t throw strikes and pleased with myself when no one could go near my fastball. To calm me, a phrase would be said, “Never get too happy, never get too sad.”

The point of the saying was that sometimes, the kids would hit everything, and other times they couldn’t even with a Ken Griffey Jr. bat. Stay balanced and don’t let the variability of the game impact you. It’s out of your control.

Today, I sometimes remix that quote. Lately, I’ve been saying, “It Can Always Get Better, and It Can Always Get Worse.” I like to apply this to the markets while I’m trading or following my long-term portfolio.

Momentum begets momentum, and it works on both sides — the good and the bad. You can find moments of it all around you, and in everything you’re working on. I think about athletes who catch fire. I think about artists who keep making big hits. I think about investors who keep picking the best stocks.

I’ve been watching Netflix’s stock price for years. I don’t know why I never bought it myself. Maybe it’s because I’m not a hardcore user. At least I’ve learned a great lesson following it for so long. What the stock has done is simply incredible, and I think of all the people I’ve met along the way, at one point even myself, who thought, “it can’t go any higher” or “it’s a bubble.”

The critics who doubted Netflix all the way up underestimated the boundaries of trend, and how long it can last. Momentum builds on itself. At times, it is exponential. At times it is random, and at other times it’s for good reason like underlying business growth. Regardless, it’s there and it’s grasping everyone around it.

I recently saw a tweet from one of the best market thinkers I know. Most you know him. His name is Michael Santoli. He does not necessarily think Netflix will go higher or lower. That’s not his job. His job is to inform people about what’s going on about the stocks everyone cares about. In one example, he compared Netflix today vs. AOL during the DotCom bubble. The point is, it can get more extreme:

If a student, or someone new to markets, approached me and asked about momentum, I would tell them about what I’ve learned from studying how Netflix trades. But I also wouldn’t want them to think this only happens on the way up. The same way a stock like Netflix can climb, and climb, and climb is the same way a stock can fall, and fall, and fall.

The other day I was looking at a chart of General Electric. I know many people who have owned this stock for generations, being passed down from family members, and employees who have been there for years. I keep thinking about GE’s brand, its history, its massive aviation business, and then its stock price. For more than a year, people have been saying there’s no way GE can keep dropping.

Did you know that GE’s stock from January 2017 to October 2017 was down 27%?

Did you know GE’s stock from January 2017 to December 2017 was down 44%?

Did you know GE’s stock from January 2017 up until the time of this post was down 60%?

In the same way it can always get better, it can also always get worse. That’s part of the problem on why trying to time tops and bottoms in a market. You never really know how good or bad it can get. I recently shared a chart about GE trying to find a bottom:

Trying to pick tops in stocks that keep rising, and catch bottoms in stocks that keep falling is a hymn market legends have sung about since the Buttonwood Tree. You’re choosing to fight against a force no one should be fighting. You’re better off knowing it could be there, accepting it, and working strategically around it.

When I started this post, my goal was to make the world of investing something bigger than it is. To show that at certain points its lessons and movements are parallel to the lives we live or are trying to create. Momentum is one of the most important concepts to understand in markets. But I now also think it’s just as important to utilize in your life. Or at least be aware of the ways it impacts you. Because it can get worse and it can get better. If you remember that, and if you recall it in the best and worst situations, you won’t be caught off guard if it accelerates against you. You will be waiting for it.

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I also write on my personal blog scheplick.com and on my markets hobby page exploringmarkets.com