Excess Gets Washed Away

Forest fires clear the way for new growth. Storms remove stale air out of a region. Predators cull the weak, which helps control overpopulation. Bear markets purge greedy speculators and those that gather an abundance of debt.

Nature has its way of regulating itself. Same goes for the markets. Greedy speculators become blinded to risk. They’re too busy counting money that they fail to watch their six.

Animals make the same mistake when they’re very thirsty or hungry. They fail to look up from time to time to see what could be coming to steal their kill or even kill them.

Too much pride. Too much complacency. Too much greed. Too much stagnation. All put you at risk of being dealt with.

We’ve seen some examples of speculators bearing the wrath of the markets over the past couple of years:

Second wave of Inflation. Many commodities topped out in early 2022 when everyone “knew” that Russia invading Ukraine would result in another wave of inflation. Markets had already priced that in and made latecomers pay the price.

Startup Valuations. A healthy sustainable business generates profits. Not just revenues, but profits. Many people eschewed profits, caring only about revenues and vibes. Low interest rates enabled this frenzy as it gave a lot of crappy businesses more time to prove they could become profitable. Now, the slack in the interest rate leash is gone. Profits have once again become important.

COVID/Meme Stocks. AMC Theaters. Docusign. Gamestop. Teladoc. Zoom Video and more. All produced spectacular uptrends during the pandemic only to come right back full circle. Many of these stocks are currently trading at prices either at or lower than they were before the pandemic started.

Real estate? This could be the next group of speculators to endure heavy losses. Similar to startup valuations, real estate prices benefited from low borrowing rates. That trend seems to be over for the time being which I think will weigh on prices.

Healthy businesses and traders don’t rely on borrowing money to stay afloat. They’re self-funded. They keep their costs low. It’s calm inside the office walls and between the ears. They know the risks ahead of time. They don’t succumb to greed, impatience or pride. They enjoy profits, but don’t let success go to their heads. They keep their eyes and ears open at all times focusing on protecting their kill and their process.

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