The Taxi Driver Indicator

When it comes to trading, there are tons of trading acronyms to follow. However, I would like to introduce you to one today, for the layperson, and believe me, this is one of the best investing indicators of all time (in my opinion). It is called the TDI.

Taxi driver Indicator

It was a rainy Sunday morning, I was just back from my Milan trip recently, jet lag. My wife beat me to it and took the family car out for a work appointment. I was still feeling hazy after a long week and decided that I should give myself a treat by taking a ride on one of the local taxi providers.

My ride was a pleasant one. In between the waiting due to traffic. My driver brought up a casual question. It went something like this. “Eh boy ah, have you heard about Nvidia?" Being the investment enthusiast that I am, I responded with energy, “OF COURSE"!”

He continued, “Can buy or not now? I heard can make a lot of money”

This was my absolute Deja Vu moment.

Back in 2021 October, I managed to catch up with my aunt. After we greeted each other she immediately asked me if I heard about Tesla stock and asked if it was a good stock to buy. Nonetheless, she went ahead with the purchase despite my advice.

For the next 2 years, the price dropped about 4 times and has not recovered to its all-time high of $400 per share.

When it comes to picking a stock to invest in. Without a doubt, having a well-thought-out plan is important. It is recommended to be coupled with various beliefs from different trading or indicators or otherwise technical analysis tips and tricks. Without the above, I highly recommend not to DIY your investments and seek professional advice. After all, money is hard-earned.

The above scenario entails a few things to take note of:

1. A new ALL-TIME HIGH - this does not mean that every time a share price hits an all-time high, a correction is bound to happen, but it indeed is a characteristic where everybody including my taxi driver and aunt would have gotten wind of it and huge interest is sparked. Even more so when mainstream media has like a million articles coverage about it.

2. The ENTIRE SECTOR is booming - My aunty was talking about how only electric vehicles will be sold in 2030 in Singapore and many countries have taken that stand. The world is going to change for the better; clean energy. All too familiar today, my taxi driver was swooning over Artificial intelligence and how he felt the world would change, with scriptwriters, lawyers, designers, and many more replaced.

3. Fear of missing out (FOMO) - Everyone wants a piece of the pie and is concerned that if they do not buy now, they might never get a chance anymore. Either that or everyone is already thinking about how much money they could make, mostly emotions at play.

Thus, I am coining this the TDI

Personal observations:

I find that many individual traders or investors often lack a clearly defined and consistent investment or trading strategy. Such a plan serves as a roadmap, detailing the rules and principles guiding their decisions regarding which assets or stocks to invest in, when to execute trades, how much capital to allocate, and how to mitigate risks and exit positions. By adhering to a trading plan, traders can avoid emotional and impulsive actions, which frequently result in overtrading, chasing losses, or holding onto losing positions for too long. Without such a plan, retail traders are more prone to trading haphazardly, inconsistently, and illogically.

Another factor contributing to the losses incurred by retail investors is their failure to maintain an asymmetrical risk-reward ratio. In essence, this means that they often expose themselves to greater potential losses than gains on each trade, or their potential losses outweigh their potential profits. An asymmetrical risk-reward ratio enables traders to remain profitable even if they are incorrect more frequently than correct. Additionally, it's advisable to consider the maximum drawdown, which indicates the largest historical decline in investment value.

For instance, some portfolios in the market have strategies that boast a maximum drawdown of -15%(5years), suggesting a comparatively secure investment opportunity when juxtaposed with alternatives like the S&P500, which has a maximum drawdown of -33.79%(5years).

Seems like there are many things to consider when it comes to investing. But if everyone could do it right, everyone would ride in a sexy Lamborghini or Ferrari.

With this, I urge you, my dear readers, to be wary especially when you come by or hear about the latest, hottest stock to buy. Do remember about the TDI! It could save you your hard-earned money!

Disclaimer: I am not suggesting that Nvidia will drop by 4 times, nor that Tesla will ever recover. So please do not quote me for this if you lose out on a life-changing opportunity. The intent and purpose of this newsletter are for entertainment purposes only and most importantly, to spice up your life. Not financial advice! Also, I am not trying to generalize Taxi drivers and aunties and I apologize in advance if I may offend anyone. It was purely an experience that I had.

Regardless, I hope this serves as a reminder for those out there who do your investments, invest safe!

Bella Ciao!