If you’re anything like me, you probably didn’t start investing with a perfectly thought through plan. You may have looked at fund managers and thought you could do better. Maybe you invested in funds, but were disappointed by the results.
You wanted more control and higher returns, with a bit more risk.
So you started picking shares.
And that’s where the trouble begins.
Stage 1: The Gambler – betting on a hot idea
This is how many of us start. We come across a share tip, from a friend, broker note or a bulletin board, maybe a confident Youtuber. It’s a convincing idea. We want in.
Sometimes it works, but often the theme has already played out by the time you buy in. You don’t even know you’re late.
This isn’t investing. It’s gambling on hope, which too often ends with a loss - yes of capital, but also of confidence, which can be hard to rebuild.
Stage 2: The Follower – trusting authority
After a few bets fail, you smarten up. You start following people who actually know what they’re doing. People you respect. Premium content. Expert Newsletters.
This is definitely a step-up. The very best investing insights are often shared by real investors, investing their own money. But even here, there are traps.
Because following others isn’t the same as genuine understanding. We can often just buy into the story.
We are all hard-wired to believe in stories. They are how we make sense of the world. We seek story arcs in our investments - a viable turnaround plan, a heroic new CEO, a market that must be disrupted. But Nassim Taleb warned of the “narrative fallacy” in Fooled by Randomness - we see patterns where they really don’t exist, stories where there’s only noise.
So if you find yourself projecting a Hollywood ending onto your favourite share, while ignoring the red flags - buyer beware. It really can pay to be a skeptic.
Story stocks vs the statistics…
It’s impossible to truly define a “story stock”, but they are often jam-tomorrow, pre-profitability shares. London’s AIM market is full of them. For some reason, companies that are pre-profit, or pre-revenue are even easier to project narratives onto. Stocks like Sirius Minerals - that tens of thousands lost money in - or the new wave of bitcoin treasury companies that are…
