Most people invest not unlike how my two year old daughter shares toys.

Let me explain.

Yesterday my wife and I went to visit some family, my daughter Maya was super excited to play with another small child of similar age. There was a crap ton of toys to play with there, barbies, babies, a play kitchen, a tiny piano and some sort of home depot looking tool workshop. Generally speaking it was a pretty dope setup. When I was a kid, we had ball in a cup and some Atari joysticks that didn't work.

Sharing is Caring.

But something funny happened when the other little girl was playing with a toy. Maya wanted to play with that toy too! Not the toy next to it, not even a better toy. She wanted That toy. Even when it was something lame, like fake plastic corn.

It didn't matter. They would fight over the corn! Suddenly that fake plastic corn became very valuable.

Why did Maya want every toy her cousin had? Well obviously if she had it, it must be worth having of course! That little girl gave that near worthless piece of plastic:

SOCIAL VALIDATION

Social Validation is very important to us humans and helps us make all sorts of important life decisions.

For instance, say you're a young person and you're at a bar trying to pick up some nice young lady. You spot a girl, and you elbow your buddy: "Hey what do you think of her?" Your buddy responds: "Naw dude, she's fat".

Are you likely to pursue her?

What if he says: "Dayuuum, she's hot bro you gotta get with that".

Feeling better about talking to her now?

Why does your buddy's opinion even matter?

If you think she's cute, that should be enough, shouldn't it? And for you ladies, why does it matter if your parents like your boyfriend or not?

It just does ok? So shut up! lol

What does this have to do with Investing?

Because! Don't you see? We all love investing in things that are going up! Something that is going up signals to us that it is valuable, that other people think it's worth having.

It doesn't matter that it actually is or not. Whether it's a plastic corn, a beanie baby, tulips, pokemon go, FAANG stocks or the latest ICO trash, it's going UP! She's hot bro, you gotta get with that!

I mean honestly when's the last time you told someone to get on board with this hot investment it's gone down for the last two years, it's a great value!

Or

The last time you told someone about Bitcoin or Tesla, they're hot! They're sexy! They've doubled, tripled, or whatever'd (<---- I can't believe this wasn't spell checked btw) in the last 12 months, better get in now while you can!

So we do, because it feels good. What could go wrong?

The problem with Investing with the crowd.

As Legendary Investor Rick Rule likes to say:

"a market that is down by 90% in real terms, means it is precisely arithmetically 90% more attractive than it was.."

Said differently, you want to invest in something of value that is down, not something that has been on a tear. Psychologically we tend to make our investing decisions based on the near term recent results. This is a BIG mistake. The best gains have likely already been made, that is unless you think it's going up forever, selling to the greater fool.

Eventually even valuable things like real estate become overvalued. Let alone the plastic corns of the world. That is not the time to buy. So don't do it!

Conclusion

There's nothing wrong with speculating or gambling with a small portion of your funds. Go ahead buy that ICO, buy that lottery ticket if you want, but if you want to go all in and gamble everything on black, you're likely to end up like my daughter or her cousin, chasing one toy after the next, and ultimately ending up in tears!

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Until next time.

It's your move.

JESS

*This post was brought to you by two year olds, they are not good investors.

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