New Investor Mindset

For those who have recently entered the investing arena or have only a few years of experience, the pandemic's effect on the financial markets was quite alarming. Within a few months, we witnessed a staggering 30% market decline.

Even more astonishing was the rapid recovery that followed. The drop was largely due to decreased demand from government shutdowns, prompting the Federal Reserve to inject substantial amounts of money into the economy. Consequently, by the end of 2020, markets were reaching new all-time highs. In the span of a year, we experienced a 30% fall followed by a 60% increase, which should have raised concerns.

As a relatively new investor, I, like many others, was eager to capitalize on these gains. With stable jobs and steady paychecks, we invested heavily in the market, driven by the fear of missing out. Unfortunately, many of us were late to the rally.

Prices surged, but the supposed risks of investing seemed nonexistent.

The Illusion of Genius in a Bull Market

One of the core principles of market dynamics is the existence of both buyers and sellers. The price at which they agree to trade sets the market value for an asset or service, including stocks.

The challenge for younger investors is that they often haven’t held their investments long enough to weather market fluctuations. Many entered the market at inflated prices, while seasoned investors cashed out at those peaks.

It’s not necessarily wrong for those who have been investing longer to secure their profits. The onus falls on newer investors who jumped in at all-time highs, naively believing that prices would continue to ascend indefinitely.

I can easily find numerous social media posts from younger investors confidently predicting that their stocks or cryptocurrencies would achieve previously unimaginable prices. Such sentiments are music to the ears of more experienced investors who recognize the potential for higher bids.

However, the market didn’t reach those lofty expectations, and after peaking in January, it has since seen a significant downturn.

Veterans of the market understand that good fortune doesn’t last forever. While it’s impossible to time the market accurately, remaining invested over the long haul typically yields rewards.

Final Reflections

While it's easy to assign blame to various entities, including the Federal Reserve (which I have done), the responsibility ultimately lies with us as individuals for our financial decisions. No one is compelling us to buy or sell at particular prices.

New investors must learn from these experiences to prepare for the future. Every situation in life serves as a learning opportunity. Now that many have established their cost basis, I hope that for those who invested at the peak, the markets will recover over the next decade.

This is simply the nature of investing. In a few years, new investors will likely face losses similar to those many of us are experiencing now.

One final thought: the Federal Reserve injected a significant amount of money into the economy, and now stocks have returned to their end-of-2020 levels. Where has all that capital gone?

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