What’s The Missing X-Factor in Your Investment Strategy?

perception is everything

The key to an effective investment strategy is to set expectations and then wait to be ‘surprised.’

And the ‘surprise’ is almost always hiding behind the same four words. Four unnoticed words that aren’t heard even when people speak them. Common words. Three of the four words are even single syllable.

They’re not latin or greek or old German. They’re just four simple fourth grade English words.

What are those magical words that seem to be able to cloak and hide the location of the biggest areas of performance in the investment world? What are those words that can tell with sniper accuracy that an investor is about to lose a whole lot of money and comfort and business class tickets to Italy?

The four words are: “This doesn’t make sense.”

They are so simple investors can’t even hear them.

Even when they come out of their own mouth ten times in a day about why their XYZ stock is still falling. When I hear myself uttering those words, mostly in my head, or under my breath I know there’s something bigger lying beneath the obvious.

AND when I hear someone else gasp “this doesn’t make sense” in a way that communicates a “WTF” type of surprise. I know there’s a bigger move ahead.

When Trump came out early in the pre election presidential cycle saying he was going to build a wall… and have them pay for it. I heard a collective gasp go out across America saying, “this doesn’t make sense.”

trump wall


And then Trump’s poll numbers shot up. Banning Muslims…people gasped again and uttered those four fateful words, “this doesn’t make sense.”

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And then Trumps poll numbers went even higher. And the “this doesn’t make sense” crowd grew even more confused. Their model of the world wasn’t making sense and they couldn’t understand what was happening.

Let’s dig in.

Tesla’s ever increasing share price (TSLA) doesn’t make sense.

Do you know anyone that has said those four fateful words in regards to Tesla’s stock in the last year?

I’m betting there’s a lot of “pick of the month” newsletter readers who have uttered those words.

Because what the reader of the “pick of the month” newsletter service has just communicated with their, “this doesn’t make sense” phrase, is that there are a dozen logical reasons why Tesla’s stock ought to be going lower.

But it’s not.

It’s going higher. And so the investor who shorted Tesla says, “this doesn’t make sense.”

tesla vs gm vs ford

But the world always makes sense.

The oceans always make sense. Nature always makes sense. The stock market always makes sense. What doesn’t make sense is that person’s model of the world. And in this case, their model of the investment world. Or their model of the electric-start-up-car world.


It’s not that the investor’s’ model of the world hurts them. It’s that they’re not willing to be surprised by their model. If an investment is going higher, and there’s no “logical” reason why, it means there’s some x-factor that the investor hasn’t considered. Because in retrospect the move higher always make sense.

What's Your Missing X-Factor

Hindsight is always 20/20

Hindsight will always show you what you couldn’t see with your current model. This is why hindsight is always 20/20. It’s clear. You may not have liked the “why” but you always see the ‘why’ afterwards. So looking and listening for, things that don’t make sense, is one area where people will often find hidden performance.


The problem is that looking for what doesn’t make sense is impossible for most humans. Because humans are built to justify their beliefs and not question them. Again, better questions leads to better lives.

The newsletter industry is in the business of validating people’s feelings

The pick of the month newsletter industry doesn’t sell ticker symbols. I know. I know. I’m always saying that is the business they are in. The pick of the month newsletter industry is in the “validating – people’s – fears – concerns – and – hidden – desires – that – they – see – the – world – through” business.

If an investor believes the market should crash and burn any moment, then that investor already owns three to five ‘pick of the month’ newsletters that are validating his fears and beliefs about how the world is about to end.

The end-of-the-world newsletter editor can be wrong for eight straight years with his prediction of doom and gloom and that won’t stop the subscriber from paying up their $99 bucks a year.

But the $99 times eight years ($792) is the cheap part. Missing out on a 200% gain from the general market. That’s the real cost.

Tesla’s Stock Price Is A Great Example.

Because those people are right, Tesla’s price direction doesn’t make sense. Just look at the numbers. Tesla’s market cap today is about $57 billion. GM’s is $50 billion. And Ford’s is $40 billion.

GM has revenue of $167 billion, profit of $9 billion and delivered ten million vehicles in 2016. To put that into perspective. Tesla has $7 billion in revenue (4% of GM), negative $800 million in profit and delivered 76,000 vehicles in 2016 (0.8% of GM).

None of this makes sense.

I know. And yet the price doesn’t lie. So there must be an x-factor that the “pick of the month” newsletter industry model of Tesla is not getting. But that’s not even the biggest aha! I’m willing to bet not a single subscriber asked for his money back with how wrong the “pick of the month” newsletter industry was about Tesla.

And you know why?

Because the “pick of the month” newsletter industry is not in the “pick of the month” business. They are in the “validating – people’s – fears – concerns – and – hidden – desires – that – they – see – the – world – through” business.

The market always makes senseThe oceans always make sense. Nature always makes sense.

The same thing goes for gold.

There were a dozen logical reasons why gold should have been going higher in 2012, 2013, 2014 and 2015. But it didn’t. Gold fell peak to trough 45%.

Gold chart


I got this wrong too. Because I was focused on the logical reasons why gold should be going higher. It took me two painful years of falling prices before “I got” what I was doing. It was painful to see and it was painful to let people know that I changed my mind. I had people yelling at me.


Calling me really bad things. Why? Not because they lost money. But because I stopped validating their fears and concerns that they saw the world through. And when I did, I broke their trust.

What they were saying via their emails was that, it’s okay to lose me money just don’t invalidate my model of the world. And when I changed my mind on gold (because the data changed). They felt betrayed.

How could you betray me?

I read emails from hurt customers saying, “how could you.” How could you change your mind. You told me gold was going up (even though it stopped going up years before that). I was paying you to hold that belief in the face of falling prices. And now you changed that belief. You lied to me. You change your mind. How dare you.

The same thing goes for US stock market valuations. Just look at the image below. 

P/E Ratios Historic


P/E ratios are sky high today. Depending on which one(s) you track the US market is either at its third most expensive level ever or it’s second most expensive level.

Does your investment strategy take the “this doesn’t make sense” into consideration?

These are the facts. And yet, some people are seeing US stock prices go higher. And every day the higher the market goes, those investors think “this doesn’t make sense.”

But the market always makes sense.

It’s the investor’s model of the world that doesn’t.

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP




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