Over a couple of days, I have been motivated to study more about finance. Sometimes when I listen to Inleo AMA and other podcasts, I have this sense that there is a lot more for me to know. So I have decided to study more about finance and will be sharing my views, thoughts and well, you know, not financial advice but just opinions.
Now I downloaded this book PDF on personal finance by Keith Redhead. Don't really know much about the author, and besides, I just searched for books on finance on these free sites that let you download them and read.
"I hope that's not illegal"?
Keith Redhead is Principal Lecturer in the Department of Economics, Finance and Accounting at Coventry University Business School. He is also the author of Introducing Investments: A Personal Finance Approach and Financial Derivatives: An Introduction to Futures, Forwards, Options and Swaps.
Pedigree looks like some good experienced person to listen to, right? 🙄
To The Book
It opens up by talking about the fact that financial principles are not a one-size-fits-all thing. There are theories, and basically what one believes in and works for them may not necessarily work for another due to several factors. So yeah, this is why in any blog about investing and finance I write or will write, I state that it's just my opinion and not concrete financial advice you should follow or else you'll fail. You can go a different route and make it big time and vice versa.
Haha, Trust your gut
No don't do that, learn and read a lot and make some sound decisions.
Two Theories are discussed
Well, I kinda knew this, since it's just logical but didn't know they were schools of thought when it comes to finance.
The Traditional and the Behavioral.
> "One of the reasons for ambiguity is the existence of differences in opinion. There is, in particular, a dichotomy between two schools of thought. One school is known as the traditional or neoclassical tradition (but which could be referred to as the arbitrage–optimization tradition). According to this school of thought, most people act rationally (or nearly so) and financial markets allow them to do so. Markets are expected to be accessible and investors should have equal access to information. Arbitrage and optimization are important concepts in this tradition. The returns from investments are expected to be no more, nor less, than fair compensation for delaying expenditure and accepting risk. This is probably the dominant school of thought amongst academics."
And then
> "The main alternative school of thought is referred to as behavioral. According to this approach, people are frequently irrational and financial markets do not always provide conditions that permit rational investors to fully achieve their objectives. Sentiment plays a large part in this tradition. Practitioners are often more comfortable with this school of thought."
Just based on this little information, you will realize upfront that there can be more than one answer to a single question when it comes to finance. And yeah, since I'm a practitioner, I lean more toward the behavioral school of thought. You may look at charts, and find "fixes in the game" and it works for you. I may watch Donald Trump give some good news about a Bitcoin reserve and that tells me it's gonna pump and it works for me. Again, you may rationalize the charts and at some times you thought based on all parameters given, it should go a certain direction and it does. I may also predict that during Trump's inauguration, the market is gonna bull run and it doesn't because I don't control what Trump will say or not say, and how people respond to it.
The Nvidia Case
Yesterday during our AMA, Khal opened up by talking about this whole Deepseek AI tech thing, and how it affected the price of Nvidia drastically. I made a funny comment that Nvidia stocks acted like a meme coin for a while.
@falcon97/re-khaleelkazi-tcpd8kjy
It lost 500 billion dollars in a day. Worse than a meme coin for sure. Hey, let's not laugh about this, that's people's investment. But all that was due to sentiments. This affects the traditional thinker. You didn't expect Deepseek to pull that card (whether they're factual about the news or not). And as Khal shared his view, the market overreacted to this whole thing and I fully agree. Will talk more about that in a separate blog.
Clearly you see in these examples that what works can fail when it comes to finances. That's also why we need to accept that both views are correct based on instances. This is also a factor that makes investments a risk. Not just investment, everything about life is risky. A motivational speaker (Jim Rohn) once said, "the moment you're born it's risky. All of life is risky, and nobody gets out alive."
So it's advisable to approach finance with an open mind. I will leave it here and continue in my next blog. Thanks for reading man.