In today’s Exponential Investor

  • Blowing up and blowing up
  • FOMO & YOLO
  • What are you even here for?

How many times have you made 10-times your initial investment on stock?

How many times have you lost over 90% of your initial investment on a stock?

Have you ever seen either?

If you’ve never had a 10X winner or never had a 90%-plus loser, I’m going to suggest you might not have been taking your investments seriously enough.

Of course no one wants to blow up their wealth. That’s why you never go all in on one single investment idea. Although you could… but more on that in a second.

Blowing up your wealth is not the outcome here. You don’t invest to come out with less than you started with.

However, if you’re really looking for and wanting the kinds of big-time gains that multiply an investment 10-times over or more, then you’re also going to put yourself in line for blowing up too.

Without that, you might not be cut out for the kind of investments that I’m going to suggest to you right now…

YOLO trades

Have you heard of FOMO?

It means, fear of missing out.

It’s a popular term used in investment these days. It’s a term that’s been around a while, but more recently made it into the mainstream.

Have you heard of YOLO though?

YOLO means, you only live once.

That also a term that’s been around for a while but more recently has made it into the investment world too.

That’s because the “YOLO trade” is fast becoming the attitude and approach of the “rookie” investor.

The YOLO trade is simple. You essentially “bet the house,” putting all your money into just one massive, high-risk investment.

It then either does one of two things…

It “moons” and skyrockets in value, turning that one YOLO trade into a huge profit machine.

It “stinks” and crashes in value, ripping off massive chunks of the investment made, with often huge double-digits losses, and blowing up the investment (in a bad way).

This is often the attitude taken from those who perhaps don’t have a lot to play with to start with. Or it’s the approach taken by those with a very deep understanding of their risk tolerances.

Or it’s taken by some out of sheer desperation.

The YOLO trade is not a smart way to invest long term.

However, it can be a useful tool if you’re prepared to risk big for big reward, knowing the full time that at any moment, you might blow up completely.

Why should anyone care?

I don’t have any problem with people making investments. I have no problem with them YOLO trading.

So long as they understand all the risks involved and are walking in with their eyes wide open, why should anyone care?

Who am I to tell you what your risk tolerances are or should be. Who are you to say what someone else’s are?

All that matters is what your own understanding of risk is, how it applies to you and how it applies to the money you’ve got to invest.

I bring this up because I get a few emails from people about some of the riskier areas of investing right now.

Two in particular are investing in crypto markets and investing in special purpose acquisition companies (SPACs).

Make no mistake, these are both high risk.

Crypto probably even more so. But what we’re seeing in these markets is the potential to make massive gains on your investments. They are the YOLO trade to perfection.

I even recently had someone write in to talk about allocating around £40k to the crypto market, which was a big chunk of their pension pot.

Now, I had to make sure they were well aware of the risks in doing that. That’s not exactly play money, and the chance that it could all blow up is a real and present danger.

But this investor knew that. They were prepared for that. They were fully accepting that this could be a life-changing move for them, or one that would see that £40k evaporate before their eyes.

Who is anyone to stand in the way of someone that’s fully aware of their situation, fully aware of their finances, their risk tolerance and their approach to how they want to invest?

A move like that is what I’d probably consider a YOLO trade. I hope by learning about the crypto markets, and seeing what kinds of crypto are out there that could deliver YOLO success, they’ll achieve a huge win.

My take is that every investor should have a little bit of YOLO money. The real punt stake. The amount that you can go hell-for-leather into an investment idea with.

An amount that if it skyrocketed 10X or more, you’d cash in for a tasty profit.

But also an amount that if it completely blew up and went to £0 then it still would have been worth the punt for that upside.

Of course, I still don’t think you should do that with all your money. Putting everything into a single YOLO trade is financial suicide. It’s not what I’d do and I wouldn’t suggest anyone should.

But even I have a bit of money there that’s in a couple of YOLO trades. The kind of money that if it was £0 it’d be okay, not ideal, not wanted, but okay. But also with the potential to “moon”.

In my view, if you don’t have at least some money ready to risk for a YOLO trade, then what are you here for? Perhaps a subscription to the Financial Times would be more your pace?

Regards,

Sam Volkering
Editor, Exponential Investor