Imagine a situation. Jonny's portfolio is fully in stocks like PLTR, IONQ, OKLO, QUBT, etc... Jonny found them up on Reddit. He's happy with the portfolio being 5x in just a year, seeing how his 10k became 50k. What a deal! At night he dreams that the next year will bring another 5x and his 50k will turn into 250k. Power of compounding! He wonders if it's a good idea to take a loan and sell his girlfriend's jewels to invest in those "5x" stocks. When he's a millionaire, he will shower her with diamonds.
In search of advice, Jonny comes to a friend, Kattie, whom he respects for warning him about using leverage and teaching him the concept of volatility. That saved all his money in the past.
Jonny: Hey K! What do you think about that idea? I'm really afraid I'm missing a great opportunity to get rich. Those companies are sure to be the next Nvidia, Apple, and Google. I want to take a risk and go all in.
Kattie: Dude… why do you think these companies are great investments in the first place? Have you seen the financial results and checked the valuation? The P/E and P/S ratios are so insane that I wouldn't even bother looking deeper.
Jonny: You should see what people on Reddit are saying! This is the ultimate game, a once-in-a-lifetime opportunity. AI will replace all current jobs, and quantum will replace all modern computers. Just yesterday the CEO of that quantum stock said they're the next Nvidia. I'm already up 5x. It means something!
Kattie: Yeah, it means you're a gambler - and CEOs are really great at pumping hype and making themselves money. Look, successful businesses don't appear and disappear overnight. Take your beloved Apple, Nvidia, or Google and look at their history. In 2005, Google was already a business with world-class infrastructure - from their exceptional search and ads engine to tools like Gmail, Maps, Images, and more. Guess what? 2005 was just the beginning of Google's journey. In 2010, Apple had multiple successes with its products - from the Apple I to the Macintosh, iPod, and iPhone. In 2010 it still wasn't too late to buy Apple stock, right? In 2015, Nvidia was already a successful company loved by gamers, CG artists, and researchers. Their products were exceptional; everyone wanted the latest GeForce GPU in their setup. You'd think 2015 was too late? Ha!
Jonny: I don't get your point.
Kattie: Today's "investors" buy garbage businesses with questionable products, all because management is big on words, selling a "we're the future" story. Really? Then prove it first - in action, in product. With a great business, you don't need a middleman selling you a story; you can witness the impact yourself. A great business would tell you, in a confident voice: "Don't be afraid. Do your research; take your time. Even after five years, we'll still offer a great opportunity." They are not loud, because they have a moat! A scam business sells you a beautiful narrative, plays with your emotions, and gaslights you into buying their asset with the confidence of a professional narcissist. Do you really think those companies you invested in are the next Nvidia, Google, and Apple? Have they demonstrated excellence multiple times over the previous years? Did they really changing the world? Do you see it yourself?
Jonny: Well, I guess we need to wait and see if they'll really create a product that will change our lives. Now I see why you brought up Google in 2005 - it was already impacting everyone's life, but it wasn't a missed opportunity. It was just the beginning.
Kattie: Exactly! Great companies continue to be great and reinvest their talent into developing more great stuff.
Jonny: What should I do with my portfolio? Sell it? Buy Nvidia and Google?
Kattie: I won't tell what you should do. If I were in this situation, I'd first consider myself very lucky. I made good money on a blind gamble. Thanks, life! Then I'd be smarter with my investments. I'd take my gambling profit and reinvest it into an index fund by dividing it into 24 equal chunks and buying one chunk every month. That would benefit me if the stock market crashes because of all the insane gambling hype happening right now. I'd use those two years to learn financial analysis and how to interpret companies balance sheets. That would give me the tools to invest in the market.
Jonny: But 5x, I really afraid that I might miss the next round.
Kattie: Remember, 99% of start-ups fail, even if at some point their stock price rises 10x in a short period of time. That means you have a 99% chance of losing your money. Short-term gains != long-term success. In a gamble, it's better to take a profit and leave the table.
Jonny: I guess you're right. I'll ask what folks on Reddit think about this situation.
WDYT, folks? Are you with Jonny or Kattie on this one?