WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

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ARE WE NEAR THE END…

The biggest mistakes most investors make early in their investment careers are not cutting their losses quickly and letting their winners win. They say hindsight is 20/20, but in retrospect, if you think about how much old money you lost chasing new money, it would make one absolutely sick.

Once seasoned, you understand my aphorism “The Why is More Important than the What.”

It’s not enough to know what you are buying; it’s of hyper-importance that you know why, especially in today’s internet age, when a surprisingly small proportion of today’s investors are actually experiencing a real bear market.

Over the last five years (2020–2025), the U.S. stock market has seen a massive influx of new retail investors, with approximately 30 million new retail brokerage accounts opened since 2020. This surge began with the wave of pandemic-era market participation in 2020 and 2021, and significant numbers of these new investors have remained active in the market.

So not only have they not seen a bear market, but they are under the misconception that all stocks go up.

Where they were once lucky, they are under the misguided influence of greed, falsely confusing luck with skill.

They don’t have the skillset to distinguish the trash from treasure because in a euphoric bull market, all stocks go up, even the ones lacking fundamentals or earnings.

So, it’s not a matter of if, it’s when fundamentally bad companies will return to their natural state of poor performance.

Unfortunately, it’s going to take a recession or a bear market in some cases for some to see this reality.

Until then, it will be a wild roller coaster of greed-filled emotions and musical chairs where everyone prays they have a seat when the music stops.

We are in an environment that makes people mouth the word “bubble” quite frequently. New Investors are seeing outsized gains and are switching from equities to options at an alarming rate.

Among those with less than two years of investing experience, about 31% reported having traded options, and 56% had an account capable of trading options, which is notably higher than the average across all experience levels.

This surge is driven by the accessibility of online brokers like Robinhood’s, commission-free trading, and greater access to financial education resources, making options trading especially popular among new, younger retail investors in their first years of investing.

Now, when you combine this behavior with a bull cycle where we have favorable government policy, a cutting Fed, earnings growth, and a period of deregulation, what you have is the equivalent of the late 90s internet bubble in terms of investment behavior and sentiment.

As a broker, it was broker Disney World where pretty much any stock you bought went up until the bubble popped and the losses went deep and wide.

This environment inspires a contagious brand of false and untested confidence.

Mike Tyson once said everyone has a plan until they get hit, which lies the problem because most new investors have zero plans and have never been hit.

This also means that there are a lot of unseasoned investors walking around with a false sense of entitlement and expectations, not knowing they are one trade or big mistake from blowing their entire account up.

First off, if they are lucky enough to own the right company, they are risking the farm on options. Unsuspectingly ignorant and unaware that 85% to 90% of new option player blow up their accounts in the first year.

Their experience level will not allow them to see the superpower of time, and that a great investment, along with dollar cost averaging, is a wealth creator. If you let the internet tell it, we are in the period of fast money, and you’re a fool if you’re not leveraging your account with options.

This mindset means investors are a bit too euphoric, where the typical behavior includes overconfidence, optimism, and aggressive buying driven by rising prices and positive sentiment.

Investors often exhibit “fear of missing out” (FOMO), leading even inexperienced participants to enter the market, frequently chasing hot sectors or high-flying stocks without regard for valuation or risk.

Herding behavior becomes common, with many investors following the crowd rather than conducting independent analysis.

Over concentration in popular assets and a lack of diversification often develop, accompanied by a belief that “this time is different” and that prices will continue to rise indefinitely.

Key characteristics to watch for include rising asset prices that far outpace underlying fundamentals, such as earnings or economic growth; exuberant media coverage; widespread bullishness; and the entrance of the least-informed investors.

This phase often ends with a sharp market correction when reality fails to meet inflated expectations and the “greater fool theory” collapses.

You will know the end is near when you see tremendous leverage in the marketplace, and every financially uneducated person thinks they are a financial genius because they made 300% on options in a week, and now they are on the internet, pandering financial education courses.

Frightening to think, but true, so be careful.

 WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

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ARE WE IN ANOTHER BUBBLE…

Question: Are we in a bubble? In order to answer this, let’s first establish exactly what a bubble is. 

A bubble in the stock market is a situation where the prices of stocks or other assets rise rapidly to levels far above their intrinsic or real value, driven largely by speculative buying and investor enthusiasm rather than fundamentals.

This speculative buying creates a self-reinforcing cycle where prices increase simply because investors expect them to keep rising, often fueled by media hype, fear of missing out, and irrational optimism. Eventually, the bubble bursts when investors lose confidence or realize prices are unsustainable, leading to a sharp and often sudden decline in prices, causing significant financial losses to those who bought at inflated levels.

The dotcom bubble was characterized by an explosive rise in valuations of technology and internet-based companies from roughly 1995 to 2000.

Key characteristics included speculative investment in startups, many without profits, revenues, or even finished products, that nonetheless saw their stock prices soar on optimistic investor expectations tied to the growth of the Internet. 

This was the craziest time to be a broker. 

I would walk into my office, and stocks would be up 100% purely based on hype.  Wall Street fanned the flames because, given an opportunity to package financial securities for a profit, it meant that the barrier to entry was low. 

What you had were companies with no earnings, just the distinction of being an internet company, doubling and tripling.  Companies like Gadzoox, whose Shares tripled on the first day of trading, reaching nearly $2 billion market cap, but the company was sold four years later for only $5.3 million.

Who could forget Pets.com’s IPO at $11 a share in February 2000? Shares soared at first but crashed to $0.22 by its bankruptcy nine months later. 

And last but not least, theGlobe.com. Its stock rose an astonishing 606% on its IPO day in November 1998, but the company quickly lost its value and dissolved as the bubble burst.

During this period, the Nasdaq index, dominated by tech stocks, rose nearly 600% during this period, fueled by easy capital, venture capital enthusiasm, and investor hype focused more on potential future gains than on traditional financial fundamentals.

When it was all said and done, the Nasdaq plummeted about 77% from its March 2000 peak to October 2002 lows, wiping out trillions of dollars of investment, bankrupting many dotcom firms, and causing significant losses even for established tech companies. 

I remember going through a brief depression during this period as all accounts were absolutely smashed, and my books were burnt. 

But when one door closes, another door opens. This led me to a job at a small research firm where I learned the basics of modeling and picking great companies. Had I known the things I know now back then, I would be sitting in Hawaii sipping on a 50/50 (orange and cranberry juice). 

But since everything happens for a reason, it’s allowed me to know the difference between a good, great, and bad investment. This allows me to distinguish the difference between the dotcom bubble and what analysts are calling an AI bubble. 

For example, many leading AI companies today have substantial and growing revenues, often rooted in scalable subscription (SaaS) models and cloud services, whereas many dotcom companies had little to no revenue and unproven business models. 

Microsoft’s Azure AI business runs at an $86 billion annual rate, and OpenAI projects $20 billion in revenue in 2025, in contrast to many dotcom startups that were valued on hype alone.

Both eras feature massive capex or infrastructure investments. Like Lucent technology building out fiber optic networks in the 1990s vs. AI data centers today. 

However, today’s investments are primarily made by financially strong hyperscalers like Microsoft, Meta, and Google, with the biggest balance sheets in the world, whereas, dotcom-era infrastructure was often overbuilt by less stable companies, leading to severe overcapacity and tons of unused dark fiber.

Lastly, there is a difference between promising revenue-generating businesses with no earnings versus stocks that are detached from reality. 

And although some would argue that some stocks today are detached from reality, you had to be there to understand that during the dotcom era, stocks were up over 100% and more on a regular basis without any rhyme or reason. 

Also, as much as analysts are asking where is the beef, we are seeing significant penetration in AI. Meanwhile, dotcom failures were often tied to the simplistic hope of capturing eyeballs without a sustainable business plan. 

If you truly understand where the money is going to be made, it’s going to be about compute, efficiency and getting more from what you have as opposed to more of what you have…. Pay attention, there is always something valuable in an estate sale.

WHEN INVESTING BECOMES A LIFESTYLE YOU WEAR IT!

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Kevin Davis Founder of Investment Dojo and Author of The C.R.E.A.M. Report