Inside every investor’s mind lives a crowded little theater of biases, fears, impulses, and psychological traps.

Some are harmless. Others quietly sabotage portfolios for decades.

One of the most powerful is loss aversion.

Loss aversion is our tendency to feel the pain of losses more intensely than the pleasure of equivalent gains. Psychologists have found that losing $10,000 hurts roughly twice as much as gaining $10,000 feels good.

And honestly? Most investors already know this instinctively.

A big portfolio gain may bring excitement, confidence, maybe even fleeting euphoria. But a large loss can produce something much heavier: anxiety, regret, embarrassment, anger, even paralysis.

Neuroscience studies support this. Financial losses tend to activate threat and pain centers in the brain more intensely than equivalent gains activate reward centers.

In other words, your brain often reacts to a portfolio decline as though something genuinely dangerous has happened.

That emotional imbalance explains a tremendous amount of irrational market behavior.

It explains why investors panic-sell during downturns. Why they hold terrible stocks endlessly hoping to get back to even. Why they sell great winners too early. Why some people abandon investing altogether after experiencing steep losses.

Have you ever done any of these things?

I certainly have, except I never abandoned investing.

The Brutal Arithmetic

But there’s also a fascinating bit of arithmetic lurking beneath loss aversion, and once you see it, you can’t unsee it.

Suppose your $10,000 portfolio falls by 50 percent.

You now have $5,000 remaining.

To recover back to $10,000, you don’t need a 50 percent gain. You need a 100 percent gain.

Your money must double.

Fifty percent down requires one hundred percent up.

And the deeper the loss, the more brutal the recovery math becomes.

If your $10,000 portfolio falls 90 percent, you’re left with just $1,000. To recover back to breakeven, you now need a staggering 900 percent gain.

That arithmetic asymmetry feels psychologically crushing because it is.

Perhaps our brains evolved to fear losses precisely because recovery can become exponentially harder as losses deepen. Maybe some part of us instinctively understands this math, even if we never consciously calculate it.

The Opportunity Hidden Inside the Fear

But here’s the important distinction.

If you selected an investment rationally—based on research, fundamentals, valuation, competitive advantages, long-term growth prospects, or whatever criteria matter to you—then a declining price should not automatically terrify you.

In many cases, it should excite you.

Why?

Because the same asset you wanted yesterday is now available at a lower price. More ownership. Better valuation. Greater future upside potential.

Yet that’s rarely how it feels emotionally.

When your portfolio declines, your brain typically doesn’t reward you with a pleasant burst of dopamine. Instead, you may feel cheated, foolish, angry, discouraged, or suddenly convinced you never should have been in the market at all.

That’s loss aversion speaking.

How I Actually Handle This

Personally, when I buy a stock or ETF, I often avoid deploying my entire intended position immediately.

If I plan to allocate $10,000, perhaps I initially invest only $7,000 and deliberately reserve the remaining $3,000 in case the stock declines further.

That way, lower prices become an opportunity rather than a catastrophe.

And remember this: stocks are sold for countless reasons unrelated to the underlying business.

Investors may need liquidity. Institutions may rebalance. Interest rates may rise. Entire sectors may temporarily fall out of favor.

But fundamentally, there is usually one dominant reason a stock is bought: the buyer believes the price will eventually rise.

So if you purchase a high-quality business that genuinely meets your criteria, and the stock temporarily moves against you, that alone does not mean you failed.

Don’t become trapped by loss aversion and the intimidating arithmetic attached to it.

If the underlying thesis remains intact, lower prices may simply offer the opportunity to accumulate more shares at more attractive valuations. Dollar-cost averaging into weakness can become a powerful long-term advantage.

And when the reversal eventually comes, you may be extraordinarily grateful you leaned into the discomfort instead of fleeing from it.

The Important Caveat

Of course, there’s an important caveat.

If your stock collapses by 90 percent, there is also a reasonable possibility that you made a serious mistake.

Not every declining stock is a bargain. Sometimes the market is correctly identifying a broken business, fraudulent management, excessive debt, technological obsolescence, or a permanently impaired future.

The key is learning the difference between temporary fear and permanent impairment.

That distinction separates disciplined investors from emotional ones.

And that’s exactly what I teach inside Compounders Stock Market Academy. Not just what to do, but how to think so you can make those distinctions yourself.

Learn more: www.compoundersacademy.com

Imagine seeing the future before almost everyone else, building one of Wall Street’s hottest investment funds around that insight, and then being forced to sell before your thesis has time to play out.

That is what happened this week to Leopold Aschenbrenner.

Aschenbrenner is 24 years old. He graduated from Columbia University at 19 as valedictorian, worked on artificial intelligence research, joined OpenAI’s Superalignment team, and later published a 165-page essay called Situational Awareness: The Decade Ahead.

His argument was simple and provocative: artificial intelligence was advancing much faster than most people understood, and the infrastructure required to support it would become one of the most important investment opportunities of our time.

Silicon Valley paid attention. So did Wall Street.

Aschenbrenner founded a hedge fund named Situational Awareness and invested heavily in companies positioned to benefit from the growth of AI. The strategy worked spectacularly. By May, the fund had reportedly grown to more than $20 billion and gained approximately 270% after fees in 2026.

Then July happened.

AI-related stocks fell sharply, and Situational Awareness lost approximately 67% during the month. Because the fund had used borrowed money to increase the size of its investments, those falling prices created margin pressure. The fund eventually sold most of its public stock portfolio to Citadel.

Aschenbrenner did not suddenly become less intelligent. His research did not disappear. His understanding of artificial intelligence did not evaporate.

His timeline changed.

What Leverage Really Changes

Leverage allows an investor to control more assets than the amount of money they actually own.

Suppose you invest $100,000 and borrow another $100,000. You now control a $200,000 portfolio. If that portfolio rises 20%, you earn $40,000 on your original $100,000.

That is a 40% return.

For a while, leverage can make an investor look brilliant.

The problem arrives when the portfolio falls.

Your lender is not investing alongside you. The lender does not care whether your research will eventually prove correct or whether the company you own may become dramatically more valuable over the next decade.

The lender wants its money protected now.

When the value of a leveraged portfolio falls too far, the lender demands more collateral. If the investor cannot provide it, positions must be sold.

That is a margin call.

The market may recover next week. The company may be worth five times as much in ten years. The investment thesis may ultimately be correct.

None of that matters once someone else controls when you have to sell.

Being Right Is Only Part of Investing

Aschenbrenner may still be right about artificial intelligence.

AI may reshape the global economy. The companies building chips, data centers, energy systems, cloud infrastructure, and AI models may become far more valuable over the next five, ten, or twenty years.

His understanding of the future may prove extraordinary.

The problem is that investing requires more than correctly predicting what will happen.

You must also survive the period between making the investment and being proven right.

Debt shortens that period. It replaces patience with a deadline and turns a temporary decline into a permanent decision.

An investor using their own capital can look at a falling market, revisit the original thesis, and decide whether waiting still makes sense. An investor facing a margin call may lose that choice completely.

The greatest advantage in investing is often the ability to wait.

The Same Lesson Applies Outside a Hedge Fund

Most people will never run a $20 billion hedge fund, but the underlying mistake is available to everyone.

It can appear as:

• Buying stocks on margin

• Using money that will be needed within the next few years

• Taking oversized positions in one company or sector

• Using options without understanding the downside

• Investing borrowed money

• Building a portfolio that only works if the market cooperates

• Confusing a strong conviction with permission to ignore risk

Intelligence cannot repair a portfolio that was structured without enough room for error.

Research matters. Conviction matters. Understanding the future matters. The structure surrounding the investment determines whether those advantages are given enough time to work.

This is why risk management begins before you choose a stock.

You need to know how much you can afford to invest, how long the money can remain invested, what could make your thesis wrong, and whether a market decline would force you to sell.

Those questions may feel less exciting than identifying the next great company. They are also the questions that help ensure you are still around to benefit when a great investment succeeds.

What Warren Buffett Understands About Time

Warren Buffett has spent decades building Berkshire Hathaway so that temporary market panic rarely forces him to act.

He can wait.

He can hold extraordinary businesses through difficult periods. He can buy when other investors are being forced to sell. He can allow compounding to work without allowing a lender to dictate his timeline.

That patience is often described as temperament. It is also structural.

Buffett created an investing system that protects his ability to make decisions.

That may be one of his greatest competitive advantages.

What Investors Should Take From This

The lesson is larger than leverage.

A successful investment strategy needs enough flexibility to survive being early, temporarily wrong, or caught in a market that behaves irrationally.

Before investing, ask:

• What is the business beneath this stock?

• Why do I believe it will become more valuable?

• What evidence would change my mind?

• How much can I afford to lose?

• How long can I allow the thesis to develop?

• Would a major decline force me to sell?

• Am I investing with patience or depending on immediate validation?

These questions will never generate the excitement of a hot stock tip. They can save you from making a temporary setback permanent.

The First Rule of Compounding

Leopold Aschenbrenner’s story is fascinating because he may eventually be proven right about the most important part of his thesis.

AI may change nearly everything.

His mistake was building an investment structure that could not tolerate the market disagreeing with him, even temporarily.

Extraordinary returns can come from owning extraordinary businesses for a very long time. That requires understanding the opportunity, managing the risk, and protecting your ability to wait.

The smartest investor in the room is not always the person with the boldest prediction.

It is often the person who built a strategy capable of surviving long enough to benefit from being right.

Because the first rule of compounding is making sure you are still there when it happens.

About Michael Harvey

Michael Harvey has spent more than 30 years studying markets and developing a practical approach to investing built on business analysis, economics, psychology, probability, and market history. He teaches investors how to understand the business beneath a stock, evaluate price and value, manage risk, and build strategies they can use independently. Through his writing and investing education, Michael helps people move beyond headlines, predictions, and stock tips to develop the judgment and discipline required to make more informed decisions over time.

Subscribe

If you want to understand how to evaluate investments, manage risk, and think through the market without relying on tips or predictions, subscribe for Michael Harvey’s current perspective and practical investing insights.

The goal is to help you develop something more valuable than another stock recommendation: your own judgment.

This article is for educational purposes and does not constitute financial advice.

Source reporting: Reuters, The Wall Street Journal, and Financial Times.

While everyone stares at one spotlight, another sector is usually getting ready for its own run. I call this the crushed sector strategy, and it works by finding something with real staying power that’s fallen out of favor, then watching for what starts to shift underneath it. Rates drop. Trial results land. Acquisitions pick up. By the time everyone notices, the early move already happened.

This is what we teach at Compounders Stock Market Academy, not stock picks, how to actually think through a market before everyone else catches on.

About the Author

Michael Harvey has spent 30+ years teaching people how experienced investors actually think. He’s taught in conference rooms across New York City and founded Compounders Stock Market Academy, where he focuses on frameworks and long-term wealth building instead of stock tips. This article reflects patterns he’s observed repeatedly across market cycles, the importance of recognizing crushed sectors before Wall Street does.

QUICK ANSWER (TL;DR)

While everyone focused on AI over the past year, biotechnology quietly returned with 90-400% gains. This wasn’t luck. Interest rates dropped, clinical trials succeeded, and Big Pharma started acquiring biotech firms. The lesson for investors: Don’t chase one story. Markets reward people who recognize overlooked sectors and understand what changed. This is what we call the crushed sector strategy.

The Story Everyone Missed

Here’s what happened over the past six months.

If you watched financial news, you’d think there’s only one industry worth investing in.

Artificial Intelligence.

Every company either uses AI, is building AI, is thinking about AI, or knows somebody whose cousin once used AI.

Wall Street has been absolutely captivated. Venture capitalists are throwing billions at it. Every earnings call mentions it. Every strategy deck highlights it.

But here’s what most investors, even the smart ones, completely missed.

While everyone was watching AI, biotechnology quietly became one of the market’s strongest sectors.

And the gains? They’ve been extraordinary.

The Numbers That Nobody’s Talking About

Let me show you something.

Over the past 12 months:

• SPDR S&P Biotech ETF (XBI): +90%

• Triple-leveraged biotech ETF (LABU): +400%

Not 4%. Not 40%.

400%.

Not bad for an industry many investors had almost completely written off.

Here’s the thing that fascinates me.

Most of the people who made money on biotech didn’t get lucky. They understood something.

They recognized a pattern.

And that pattern is exactly what I’m going to teach you today.

Why This Matters for Your Investing

I’m talking to you because you’re probably a lot like my students.

You make good money. You know you should be investing. You have capital to deploy.

But here’s what I see happen constantly.

You’re staring at the wrong thing.

Wall Street only talks about one story at a time. Right now it’s AI. Last year it was crypto. Two years ago it was semiconductors. The year before that, meme stocks.

But markets don’t work that way.

While everyone’s staring at one light, another industry is quietly getting ready for its next move.

And that’s where the real money is made.

What Changed: Why Biotech Suddenly Woke Up

Several things happened almost simultaneously. Understanding why reveals something crucial about how markets actually work.

1. Investors Remembered What Biotechnology Actually Does

This sounds obvious. But it’s not.

When you own a biotech stock, you’re not buying a story. You’re not buying a ticker symbol that moves up and down.

You’re buying a company that might discover the next treatment for cancer. Heart disease. Alzheimer’s. Depression.

That’s real value.

But investors often forget this. They get caught up in sentiment, headlines, and what Wall Street is talking about this week.

Over the past year, as biotech started moving, something shifted.

Investors remembered: these companies are actually discovering life-changing medicines.

2. Interest Rates Became Friendlier (This Is Crucial)

This is the most important factor most people don’t understand.

Biotechnology companies work differently than most businesses.

A typical company: Makes products, generates revenue, becomes profitable.

A biotech company: Spends 10-15 years researching, burning cash, funding clinical trials, before any revenue appears.

Here’s the problem:

When interest rates are high, capital is expensive. Investors don’t want to fund a company that loses money for a decade. Why wait that long when you could get 5% in a Treasury bond?

When interest rates drop:

Suddenly, that math changes. Investors are willing to fund tomorrow’s medical breakthroughs. The timeline doesn’t feel as painful.

Over the past year, as expectations for lower interest rates improved, biotech became attractive again.

That wasn’t a coincidence. That was fundamentals.

3. Clinical Trial Results Started Coming In

Unlike most industries, biotechnology has what I call “scoreboard moments.”

Phase 2 trial succeeds? Stock jumps 50%.
Phase 3 trial fails? Stock crashes 40%.
FDA approval? Company value transforms overnight.

Over the past year, positive trial results started flowing in.

Investors saw proof that these weren’t just research experiments. They were making progress toward actual products.

Real medicines. Real patients. Real revenue.

4. Big Pharma Started Shopping

Here’s the acquisition story most people miss.

Blockbuster drugs from the 1990s and 2000s are losing patent protection. When a drug’s patent expires, generic versions flood the market. Revenue disappears.

Large pharmaceutical companies need replacements.

Building a new drug from scratch? 10-15 years. Billions of dollars. Massive uncertainty.

Buying an innovative biotech firm with a promising pipeline?

Much faster. Much smarter.

Translation: Small biotech companies became acquisition targets.

Wall Street noticed. Stock prices reflected it.

The AI Plot Twist

Here’s where the story gets interesting.

AI is helping biotechnology too.

AI systems can:

• Examine millions of chemical compounds in seconds

• Analyze enormous genetic databases

• Identify promising drug targets

• Predict protein structures

• Help design better clinical trials

But here’s what AI doesn’t do.

It doesn’t invent miracle drugs.

Scientists still have to perform years of laboratory research. Animal studies. Human clinical trials. Biology stubbornly insists on following the laws of biology.

Think of it this way.

Imagine asking someone to search every beach in Florida for a diamond.

Now imagine giving that person an extraordinarily accurate metal detector.

They still have to dig.

But they’re digging in much better places.

That’s what AI is doing for biotechnology.

It makes the research process faster and smarter.

It doesn’t bypass the hard work.

The Investing Lesson That Changes Everything

One of the easiest mistakes investors make is assuming the market has only one winning story.

It almost never does.

While everyone was busy counting AI tokens and building AI data centers, biotechnology quietly reminded us that innovation comes in many forms.

One industry is teaching computers to think.

The other is trying to help people live longer.

Both are building the future.

Both deserve capital.

Both will likely create wealth over the next decade.

But here’s what separates experienced investors from everyone else.

Experienced investors don’t chase headlines. They recognize patterns.

The Crushed Sector Strategy: How This Actually Works

This is what we teach at Compounders Stock Market Academy.

It’s called the crushed sector strategy.

Here’s how it works.

Step 1: An Entire Sector Falls Out of Favor

Biotechnology spent years underperforming. Investors moved on to other ideas. Wall Street stopped talking about it. Biotech stocks went quiet.

Most people thought the story was over.

Step 2: Fundamentals Improve

But something changed.

Interest rates dropped. Clinical trial results came in. Acquisition interest increased.

The fundamentals got better.

Step 3: The Market Starts to Recognize the Shift

Early investors who saw the change started positioning themselves.

Stock prices began rising.

Step 4: Early Investors Compound Wealth

People who recognized the pattern early, before Wall Street caught on, made substantial returns.

XBI +90%. LABU +400%.

That wasn’t luck. That was pattern recognition.

How to Identify a Crushed Sector Before It Happens

You can do this.

Look for industries that have been written off too early.

What fell out of favor? What did everyone give up on?

Watch for what changes.

Interest rates. Trial results. Regulatory shifts. Acquisition interest. Earnings recovery. New leadership. Market consolidation.

Position yourself before the market catches on.

This is the difference between professional investors and everyone else.

Professional investors think in terms of patterns. Cycles. What’s been oversold? What’s been overlooked? What fundamentals are improving?

Amateur investors chase headlines.

The difference compounds over decades.

Frequently Asked Questions

Q: Why did biotech stocks suddenly outperform?

A: Four things happened simultaneously: investors remembered biotech discovers real medicines, interest rates became favorable for long-term research funding, clinical trials started succeeding, and Big Pharma began acquiring biotech firms. When multiple catalysts align, stocks move.

Q: Is AI replacing biotechnology?

A: No. AI accelerates biotech research but doesn’t replace the science. Both industries are growing. AI is making drug discovery faster. Biotech is applying those tools. They’re not competitors. They’re complementary.

Q: How do I identify crushed sectors?

A: Look for industries that have fallen out of favor (everyone gave up on them), then watch for fundamental improvements (interest rates, trial results, acquisition interest, earnings recovery). When fundamentals improve but the market hasn’t noticed yet, that’s where opportunity lives.

Q: Should I buy biotech stocks now?

A: We teach frameworks, not stock picks. Evaluate the business fundamentals using owner-investor thinking. Is it a good business? At what price is it fairly valued? Do you understand what you own? If you can answer those questions, you know what to do.

Q: How do I develop this pattern recognition skill?

A: Start by looking backward. Study sectors that have outperformed. What changed? What fundamentals improved? What catalysts drove the move? Then practice applying that lens to current market situations. That’s what we teach at Compounders.

Q: What’s the difference between chasing headlines and recognizing patterns?

A: Chasing headlines means reacting to what Wall Street is talking about today (AI, crypto, meme stocks). Recognizing patterns means understanding what’s been overlooked, what fundamentals have improved, and positioning before the market catches on. One is reactive. One is proactive.

The Bigger Picture

As lifelong compounders, your job isn’t to chase headlines.

Your job is to:

• Recognize when an entire sector has been written off too early

• Understand what changed (fundamentals, interest rates, sentiment, catalysts)

• Position yourself before the market catches on

• Hold discipline while everyone else is staring at the brightest light on stage

Sometimes, while everyone is focused on one story, another star is quietly getting ready for its encore.

Biotechnology just had one.

The question is: What sector is being quietly overlooked right now?

What fundamentals are improving that nobody’s talking about?

That’s where patient investors make their money.

Key Takeaways

• Biotech outperformed AI over the past year despite receiving far less media attention

• Sectoral performance is driven by fundamentals, not headlines (interest rates, trial results, acquisition interest)

• Markets rarely have one winning story—innovation takes many forms

• The “crushed sector strategy” works by identifying when an entire industry has been written off, then watching fundamentals improve

• As an investor, your job is pattern recognition and discipline, not headline chasing

Ready to Learn How to See These Patterns?

That’s exactly what we teach at Compounders Stock Market Academy.

Not stock picks. Not predictions.

How to think like investors who actually compound wealth over decades.

The frameworks. The patterns. The discipline.

Learn More About Compounders.

Or subscribe to Outsmarting Wall Street for weekly insights on market patterns nobody’s talking about yet.

Wall Street just did something it almost never does.

It gave retail investors what they asked for.

Starting in 2025, the Pattern Day Trader rule is gone. Some brokers have already eliminated it. Most will follow.

For twenty years, this rule said: if you have less than $25,000, you can’t day trade. If you have more, go crazy.

It was arbitrary. It was frustrating. It felt unfair.

And people hated it.

So the SEC listened. They’re eliminating it.

Here’s my problem: Everyone celebrating this is about to lose money.

What Just Changed

For context, the PDT rule worked like this:

Make four or more trades in five days with under $25K? You’re flagged as a pattern day trader. Restrictions apply.

The rule annoyed people. Understandably.

Today’s retail investors have access to real-time data, AI tools, and more information than professional traders had in 2000. The argument for eliminating the rule is logical: adults should be free to make their own decisions.

I agree with that argument.

But here’s what people aren’t paying attention to: This is subject to your broker’s own risk controls. So check them out.

I also know what’s about to happen next.

Here’s What I’ve Watched for 30 Years

Every time a barrier to entry gets removed, the same cycle repeats.

New freedom arrives. People get excited. They trade more frequently. They mistake activity for skill. They lose money. Fast.

Then a few people make money. Those people get written about. Everyone else forgets about the losses.

The PDT rule removal will follow the exact same pattern.

Because here’s the thing people don’t understand:

Removing the barrier doesn’t remove the problem.

The problem was never the $25K minimum.

The problem is that most people confuse trading with investing.

They think clicking “buy” and “sell” twenty times a day is a strategy.

It’s not. For most people most of the time, constantly buying and selling is ultimately a losing game. It’s random day trading. Maybe swing trading. But it’s not investing. Most people lose money trying to actively trade.

It can be a heartbreaking form of dark entertainment.

What Trading Actually Looks Like

I’ve spent thirty years watching smart people turn small accounts into smaller accounts at record speed.

Here’s how it happens:

You have $5,000. You get excited about a stock. You buy it. The price moves. You feel smart. You sell. You make $200. You feel like a genius.

Now you think you’ve cracked the code.

So you trade again. And again. And again.

Each trade has a commission. Each trade has tax consequences. The bid-ask spread costs you money. The emotional energy exhausts you.

After three months of four trades a day, your $5,000 is $2,000.

And the person who told you about the first stock? Still rich. Because they don’t trade like that.

The Real Difference Between People Who Build Wealth and People Who Don’t

This is the pattern I teach at Compounders.

It’s not complicated. It’s just true.

People who build wealth:

• Own great businesses

• Hold them for years

• Let compounding do the work

• Minimize taxes and commissions

• Make boring decisions

People who spin their wheels:

• Trade frequently

• React to news

• Confuse activity with progress

• Pay commissions on every trade

• Make exciting decisions

Warren Buffett didn’t become a billionaire by trading four times a day.

He became a billionaire by finding great companies and holding them for decades.

That’s not because he’s smarter than day traders.

It’s because he thinks differently.

What’s Actually Replacing the PDT Rule

The SEC isn’t just opening the casino and walking away.

Brokers will now focus on:

• Your actual risk exposure

• Margin requirements

• Collateral levels

• Real-time account monitoring

Translation: They removed the speed limit, but they kept the guardrails.

The guardrails don’t protect you from losing money. They protect the broker from liability when you lose your account in three months.

Which, statistically, you probably will if you day trade aggressively.

Here’s What This Actually Means for You

If you’re starting to invest, pay attention to this shift.

The freedom to day trade will soon be universal. Everyone will have access to the same tools, the same speed, the same ability to trade constantly.

What won’t be universal is the knowledge to profit from it.

Most day traders lose money.

This is documented. This is proven. This is what happens when people mistake speed for skill.

The PDT rule removal doesn’t change that math.

It just makes it easier for more people to find out the hard way.

What I Actually Teach

At Compounders, I don’t teach you how to trade more.

I teach you how experienced investors think.

That’s different.

Experienced investors ask: “Is this a good business at this price?”

They build a thesis.

They hold discipline.

They wait.

Here’s what experienced investors know that beginning traders don’t:

The biggest fortunes in history weren’t built by trading more.

They were built by finding one or a few great companies and letting compounding do the heavy lifting.

This isn’t opinion. It’s data.

And it’s learnable.

One More Thing

We teach trading too at Compounders. But as a disciplined practitioner with a real edge, not as an emotional pursuit constantly reaching for momentum or the greater fool theory.

There’s a difference. And that difference is everything.

The Pattern That Always Repeats

Regulatory barriers fall. People get excited. More activity happens. Most people lose money.

The PDT rule won’t be different.

What will be different is whether you understand how wealth actually gets built.

It’s not through trading more.

It’s through understanding more.

Ready to learn? Enroll in Compounders Academy.

Here’s the thing nobody wants to admit.

Most people buying IPOs aren’t investing.

They’re speculating.

And the difference between investing and speculation is the difference between building wealth and losing money.

Let me show you the framework that separates the two.

The Core Difference

Investing = You believe a business will be worth significantly more in 5-10+ years based on its fundamentals. Revenue growth. Profit growth. Competitive advantages. You’re betting on the business.

Speculation = You believe the stock price will go up in the near term based on sentiment, momentum, or hype. You’re betting on other people’s money flowing in. You’re betting on sentiment.

Here’s the thing: they feel identical while you’re doing them.

Both feel smart. Both feel like you’ve identified an opportunity. Both feel profitable (until they don’t).

But they have completely different outcomes.

Investing Over 10+ Years

Let me show you what actual investing looks like.

You identify a company with:

1. A clear, understandable business

2. Competitive advantages (moats)

3. Growing revenue and expanding margins

4. Good management

5. A stock price below intrinsic value

You buy. You hold. For years.

The company executes. Revenue grows. Profits grow. Stock price follows.

You’re patient. You’re not checking the price every day.

You’re thinking about where the company will be in 2034, not 2024.

Over 10 years, the stock goes from $50 to $200.

You made 4x.

But more importantly, you didn’t get shaken out by the volatility.

You didn’t panic sell when it dropped to $35.

You didn’t chase FOMO when it spiked to $120 in a bubble.

You stayed disciplined.

That’s investing.

Speculation Over Months/Years

Speculation looks like:

You hear about a hot IPO. Everyone’s talking about it. Stock is supposed to be amazing.

You buy at $95. You think it’s going to $150.

Week 1: Stock goes to $110. You feel smart. You hold.

Month 2: Stock drops to $85. You panic. You sell at $80, locking in a loss.

You missed the recovery. Stock went back to $120.

You would have been right (eventually) but your emotional decision cost you.

Or:

You buy at $95. You’re convinced. Stock crashes to $40.

You hold because you’re stubborn. Convinced it will recover.

But the company has real problems. Margins are deteriorating. Growth is slowing.

Stock stays at $40 for 3 years while better opportunities pass you by.

Your capital is trapped in a dead company.

That’s speculation. You don’t have an edge. You’re just hoping.

The Margin of Safety

The best investor of all time, Warren Buffett, uses a principle called “margin of safety.”

It means: only buy something when the price is sufficiently below what you think it’s actually worth.

If you think a company is worth $100 per share, you only buy if the price is $60 or less.

That margin of safety (40%) protects you if your analysis is slightly wrong.

IPOs are the opposite.

IPOs are priced based on maximum optimism.

There’s no margin of safety.

You’re paying full price (or more) for something you hope will work out.

If anything goes wrong, you lose.

The IPO Investing Framework

If you’re going to evaluate an IPO, use this framework.

1. Understand the Business

Can you explain what the company does and how it makes money in one sentence?

“SpaceX builds reusable rockets and sells launches to customers.”

Simple. Clear.

If you can’t explain it clearly, you don’t understand it. Skip it.

2. Evaluate the Fundamentals

Is the company actually growing?

Look at:

• Revenue growth rate

• Revenue per customer

• Customer acquisition cost

• Customer lifetime value

• Path to profitability

If the company is losing money, when will it become profitable? In 1 year? 5 years? 10 years?

A company that’s profitable loses money is fine if it’ll be profitable in 2 years.

A company losing money 10 years in with no path to profitability is a bad bet.

3. Assess the Valuation

How much are you paying relative to the business?

Common metrics:

• Price to Revenue: If a company with $500M revenue is valued at $5B, that’s 10x revenue. Is that reasonable?

• Revenue Growth Rate: If a company is growing revenue 50% annually, 10x revenue might be reasonable. If it’s growing 5%, 10x is insane.

• EV/EBITDA: If the company is profitable, what’s the multiple? 15x is reasonable. 100x is insane.

• Price to Book: What are you paying for the actual assets? 2x book value is normal. 20x book value is bubble territory.

For most IPOs, at least one of these multiples will be insane.

That’s a red flag.

4. Identify the Competitive Advantages

Does this company have moats?

• Switching costs: Hard to switch to a competitor? (Good)

• Network effects: Better as more people use it? (Good)

• Brand: Defensible brand? (Good)

• Scale advantages: Does size make the business stronger? (Good)

• Intellectual property: Real patents? (Good)

If the company has none of these, it’s in a commodity business. Hard to sustain profitability long-term.

5. Evaluate Management

Have they successfully built and scaled a company before?

Or are they first-time founders with no track record?

First-time founders succeed. But the success rate is lower.

6. Calculate Your Margin of Safety

Estimate what the company is worth (intrinsic value).

Is the IPO price at least 20-30% below that?

If not, there’s no margin of safety.

You’re buying at full price (or more) based on hope.

That’s speculation, not investing.

The Decision Framework

Here’s the simple flow:

1. Does the business make sense to you? → No → Skip

2. Are the fundamentals good? → No → Skip

3. Is the valuation reasonable (with margin of safety)? → No → Skip

4. Does the company have moats? → No → Skip

5. Does the management have a track record? → No → Skip

6. All yes → Buy (maybe)

If you answer “no” to any of these, skip the IPO.

There will be other opportunities.

Don’t force it.

The Real Path to Wealth

The people who actually build wealth from investing do this:

1. Buy great companies at reasonable prices (when there’s a margin of safety)

2. Hold for 5-10+ years

3. Avoid speculation and hype

4. Let compounding do the work

They don’t chase IPOs.

They don’t trade constantly.

They don’t try to get rich quick.

They just follow a disciplined process over time.

Boring. Consistent. Profitable.

What I Actually Do

My process:

1. I find companies I understand with good fundamentals and a margin of safety

2. I hold them for years (5-10+)

3. I sell when the price gets absurdly high (peak of hype)

4. I buy back when the price crashes and there’s a new margin of safety

5. I repeat

I almost never buy IPOs.

I wait 6-12 months, let the hype die and insiders dump shares.

THEN I look seriously.

THEN the odds are in my favor.

The Bottom Line

IPOs are designed to transfer wealth from late buyers to early ones.

Understanding that pattern is how you protect yourself.

And understanding the difference between investing and speculation is how you actually build wealth over time.

Build wealth by owning great businesses at reasonable prices.

Not by chasing hype and hoping someone else pays more tomorrow.

That’s the framework that actually works.

SpaceX is one of the best companies in the world.

Elon is a visionary. Reusable rockets are legitimate technology. Government contracts are real revenue.

But when SpaceX IPOs (and it will, eventually), the stock price will probably have almost nothing to do with the company’s actual fundamentals.

Instead, it will be driven by structural forces that make the stock inherently unstable.

Let me explain the problem.

The Limited Float Problem

When SpaceX goes public, Elon will want to maintain control.

Companies do this by having majority voting rights. Or by keeping a large ownership stake.

I’d estimate SpaceX will only sell 10-20% of the company to the public.

The other 80-90% will be held by Elon, early investors, and employees (some).

Now you have an unusual dynamic.

Massive demand (everyone wants to own SpaceX). Tiny supply (only 10-20% available).

Basic supply and demand: limited supply + huge demand = prices go crazy.

But here’s the thing: that price explosion isn’t based on fundamentals.

It’s based on scarcity.

The stock could 2x or 3x in the first few weeks purely because of supply/demand imbalance.

That’s not investing. That’s a mechanical phenomenon.

Index Fund Buying Amplifies It

After SpaceX IPOs and trades publicly for a few months, it will probably get added to major indexes.

The S&P 500. NASDAQ. The Russell 2000.

Once a stock is in an index, all the index funds that track that index are REQUIRED to buy it.

Think about how much money flows into index funds.

Trillions of dollars.

If even 1% of that money flows into SpaceX when it gets added to the S&P 500, that’s tens of billions of dollars of buying pressure.

Not because people love SpaceX (though many do).

Just because their funds require it.

This mechanical buying creates another wave of price increases.

The stock is now driven by:

1. FOMO (fear of missing out) from retail investors

2. Scarcity (limited float)

3. Index fund buying (mechanical, mandatory)

None of these have anything to do with whether SpaceX will actually be a good long-term investment.

The Lock-Up Explosion

After SpaceX IPOs, there will be a 6-month lock-up period.

Early investors, Elon, the employees with restricted stock, can’t sell.

But Elon, unlike most founders, doesn’t need the money.

He’s already a billionaire 100x over.

So what incentive does he have to NOT sell on day 1 of lock-up expiration?

Answer: none.

He might dump $10B worth of SpaceX shares immediately after lock-up expires.

That’s a tsunami of supply hitting a market that’s been starved for supply.

Stock crashes.

People who bought on day 1 at $150 are now looking at $80.

The early investors? They already cashed out during the IPO and hype phase.

The Tesla Merger Speculation

Wall Street is already speculating.

What if Elon merges Tesla and SpaceX?

Both controlled by Elon. Both “transformative” companies.

Why not combine them?

If a merger happens, maybe Tesla shareholders get some SpaceX equity.

This speculation is already baked into projections.

Investors are buying SpaceX betting on a Tesla merger.

But mergers don’t always happen. Regulatory issues pop up. Tax implications complicate things.

What if the merger doesn’t happen?

Stock crashes because one of the bull cases evaporates.

The Real Fundamentals Are Actually Good

Here’s the ironic part.

SpaceX probably IS a good long-term business.

Reusable rockets are real. Space industry is real. Starlink (SpaceX’s satellite internet) has actual users.

Government contracts are revenue.

Over 10+ years, SpaceX could be one of the most valuable companies ever.

But the IPO price will probably be 3x, 5x, maybe 10x what the company is actually worth TODAY.

You could buy SpaceX at $150/share, watch it go to $400 in the first year (you feel like a genius), then watch it crash to $60 five years later (you feel like an idiot).

Or you could wait 3-5 years, buy at a rational price, and own a fantastic company without the FOMO tax.

The Pattern

This is the pattern I’ve seen with every hot IPO.

Amazon: Expensive IPO, looks crazy. But they executed and it was actually underpriced.

Tesla: Expensive IPO. Stock got more expensive. But took a decade and multiple corrections.

Uber: Expensive IPO. Stock crashed. Took years to recover.

WeWork: Supposed IPO. Never happened. Company nearly collapsed.

Crypto/AI companies: Incredibly hyped IPOs (or equivalent). Many have crashed 80%+.

You never know which category your IPO will fall into.

But you know the odds are against you paying a rational price.

What I Would Do With SpaceX

If SpaceX IPOs at a crazy valuation (which it will), I would not buy.

Too risky. Too much downside. Too much hype.

I would wait.

I would watch the lock-up expiration. Watch the stock crash 40-60% (as tends to happen).

Then, when the dust settles and you can actually buy SpaceX shares at 3-4x revenue (vs 10x+), I would look seriously.

THEN, SpaceX becomes interesting.

THEN, there’s a margin of safety.

THEN, the odds are in your favor.

The Broader Lesson

This isn’t just about SpaceX.

This is about understanding structural forces in the market.

When you see a “hot” IPO with:

• Limited float

• Founder trying to maintain control

• Likely to be added to indexes

• Tons of hype

...you know what’s going to happen.

Not if. When.

The stock will get bid up based on scarcity and hype, not fundamentals.

Insiders will sell. Stock will crash.

Late buyers will lose money.

Understanding this pattern is how you protect yourself.

And how you position to benefit when reality crashes into hype.

Next week, I’m breaking down the framework for actually thinking about IPOs rationally.

How to tell the difference between investing and speculation.

And how to build wealth in a way that actually works.

See you then.

PART 5: Investing vs Speculation (The Framework That Actually Works)

Here’s the thing nobody wants to admit.

Most people buying IPOs aren’t investing.

They’re speculating.

And the difference between investing and speculation is the difference between building wealth and losing money.

Let me show you the framework that separates the two.

The Core Difference

Investing = You believe a business will be worth significantly more in 5-10+ years based on its fundamentals. Revenue growth. Profit growth. Competitive advantages. You’re betting on the business.

Speculation = You believe the stock price will go up in the near term based on sentiment, momentum, or hype. You’re betting on other people’s money flowing in. You’re betting on sentiment.

Here’s the thing: they feel identical while you’re doing them.

Both feel smart. Both feel like you’ve identified an opportunity. Both feel profitable (until they don’t).

But they have completely different outcomes.

Investing Over 10+ Years

Let me show you what actual investing looks like.

You identify a company with:

1. A clear, understandable business

2. Competitive advantages (moats)

3. Growing revenue and expanding margins

4. Good management

5. A stock price below intrinsic value

You buy. You hold. For years.

The company executes. Revenue grows. Profits grow. Stock price follows.

You’re patient. You’re not checking the price every day.

You’re thinking about where the company will be in 2034, not 2024.

Over 10 years, the stock goes from $50 to $200.

You made 4x.

But more importantly, you didn’t get shaken out by the volatility.

You didn’t panic sell when it dropped to $35.

You didn’t chase FOMO when it spiked to $120 in a bubble.

You stayed disciplined.

That’s investing.

Speculation Over Months/Years

Speculation looks like:

You hear about a hot IPO. Everyone’s talking about it. Stock is supposed to be amazing.

You buy at $95. You think it’s going to $150.

Week 1: Stock goes to $110. You feel smart. You hold.

Month 2: Stock drops to $85. You panic. You sell at $80, locking in a loss.

You missed the recovery. Stock went back to $120.

You would have been right (eventually) but your emotional decision cost you.

Or:

You buy at $95. You’re convinced. Stock crashes to $40.

You hold because you’re stubborn. Convinced it will recover.

But the company has real problems. Margins are deteriorating. Growth is slowing.

Stock stays at $40 for 3 years while better opportunities pass you by.

Your capital is trapped in a dead company.

That’s speculation. You don’t have an edge. You’re just hoping.

The Margin of Safety

The best investor of all time, Warren Buffett, uses a principle called “margin of safety.”

It means: only buy something when the price is sufficiently below what you think it’s actually worth.

If you think a company is worth $100 per share, you only buy if the price is $60 or less.

That margin of safety (40%) protects you if your analysis is slightly wrong.

IPOs are the opposite.

IPOs are priced based on maximum optimism.

There’s no margin of safety.

You’re paying full price (or more) for something you hope will work out.

If anything goes wrong, you lose.

The IPO Investing Framework

If you’re going to evaluate an IPO, use this framework.

1. Understand the Business

Can you explain what the company does and how it makes money in one sentence?

“SpaceX builds reusable rockets and sells launches to customers.”

Simple. Clear.

If you can’t explain it clearly, you don’t understand it. Skip it.

2. Evaluate the Fundamentals

Is the company actually growing?

Look at:

• Revenue growth rate

• Revenue per customer

• Customer acquisition cost

• Customer lifetime value

• Path to profitability

If the company is losing money, when will it become profitable? In 1 year? 5 years? 10 years?

A company that’s profitable loses money is fine if it’ll be profitable in 2 years.

A company losing money 10 years in with no path to profitability is a bad bet.

3. Assess the Valuation

How much are you paying relative to the business?

Common metrics:

• Price to Revenue: If a company with $500M revenue is valued at $5B, that’s 10x revenue. Is that reasonable?

• Revenue Growth Rate: If a company is growing revenue 50% annually, 10x revenue might be reasonable. If it’s growing 5%, 10x is insane.

• EV/EBITDA: If the company is profitable, what’s the multiple? 15x is reasonable. 100x is insane.

• Price to Book: What are you paying for the actual assets? 2x book value is normal. 20x book value is bubble territory.

For most IPOs, at least one of these multiples will be insane.

That’s a red flag.

4. Identify the Competitive Advantages

Does this company have moats?

• Switching costs: Hard to switch to a competitor? (Good)

• Network effects: Better as more people use it? (Good)

• Brand: Defensible brand? (Good)

• Scale advantages: Does size make the business stronger? (Good)

• Intellectual property: Real patents? (Good)

If the company has none of these, it’s in a commodity business. Hard to sustain profitability long-term.

5. Evaluate Management

Have they successfully built and scaled a company before?

Or are they first-time founders with no track record?

First-time founders succeed. But the success rate is lower.

6. Calculate Your Margin of Safety

Estimate what the company is worth (intrinsic value).

Is the IPO price at least 20-30% below that?

If not, there’s no margin of safety.

You’re buying at full price (or more) based on hope.

That’s speculation, not investing.

The Decision Framework

Here’s the simple flow:

1. Does the business make sense to you? → No → Skip

2. Are the fundamentals good? → No → Skip

3. Is the valuation reasonable (with margin of safety)? → No → Skip

4. Does the company have moats? → No → Skip

5. Does the management have a track record? → No → Skip

6. All yes → Buy (maybe)

If you answer “no” to any of these, skip the IPO.

There will be other opportunities.

Don’t force it.

The Real Path to Wealth

The people who actually build wealth from investing do this:

1. Buy great companies at reasonable prices (when there’s a margin of safety)

2. Hold for 5-10+ years

3. Avoid speculation and hype

4. Let compounding do the work

They don’t chase IPOs.

They don’t trade constantly.

They don’t try to get rich quick.

They just follow a disciplined process over time.

Boring. Consistent. Profitable.

What I Actually Do

My process:

1. I find companies I understand with good fundamentals and a margin of safety

2. I hold them for years (5-10+)

3. I sell when the price gets absurdly high (peak of hype)

4. I buy back when the price crashes and there’s a new margin of safety

5. I repeat

I almost never buy IPOs.

I wait 6-12 months, let the hype die and insiders dump shares.

THEN I look seriously.

THEN the odds are in my favor.

The Bottom Line

IPOs are designed to transfer wealth from late buyers to early ones.

Understanding that pattern is how you protect yourself.

And understanding the difference between investing and speculation is how you actually build wealth over time.

Build wealth by owning great businesses at reasonable prices.

Not by chasing hype and hoping someone else pays more tomorrow.

That’s the framework that actually works.

Here’s what nobody wants to admit about IPO pricing.

It’s not based on fair value.

It’s based on extracting the maximum dollars from buyers while maintaining the appearance of legitimacy.

It’s psychological warfare dressed up as math.

How IPO Pricing Actually Works

The investment bank and the company sit down in a room.

They don’t ask: “What is this company actually worth?”

They ask: “What’s the highest price we can set where people will still buy?”

Those are two completely different questions.

The first question leads to a rational valuation.

The second question leads to maximum extraction.

They choose the second.

The Underwriter’s Incentive

The investment bank makes a commission. Usually 3-7% of the money raised.

If the IPO raises $500 million at $75/share, that’s a $300-350M market cap adjustment.

Actually, let me recalculate.

If they’re selling, say, 10 million shares at $75, that’s $750M raised.

The underwriter makes $22.5M - $52.5M.

If they could have sold at $85/share instead, that would be $850M raised, and their commission would be $25.5M - $59.5M.

That extra $30M in revenue? They want it.

So they price aggressively. As high as they think the market will bear.

Not what the company is worth.

What the market will accept.

The Tools They Use to Drive Hype

1. Growth Projections

The prospectus shows incredible growth projections.

“We expect to grow 50% annually for the next 5 years!”

Maybe. Or maybe not.

But the IPO is priced based on these projections.

If those projections miss? Stock crashes. But the underwriter already made their fee.

2. Comparable Company Valuation

“Similar companies trade at 15x revenue. We’re at 12x. So we’re cheap!”

But here’s the thing: the “similar companies” you’re comparing to are already overvalued.

Comparing to other overvalued companies doesn’t make you reasonable.

It makes you consistent in being expensive.

3. Total Addressable Market (TAM)

“Our market is $1 trillion. If we capture just 1%, that’s $10 billion. Our company will be worth $10 billion!”

That’s not how markets work.

A market being big doesn’t mean your company gets a piece of it.

Competitors exist. Market saturation exists. Economics exist.

TAM is often misleading.

4. Founder Credibility

“The founder of this company previously sold a company for $500M. They’re a proven operator.”

Okay. Maybe.

But one success doesn’t guarantee the next success.

And success in one industry doesn’t guarantee success in another.

Yet people get blinded by founder narratives.

The Greater Fool Theory

IPOs are built on the greater fool theory.

The idea that you can make money by buying something overpriced as long as someone else will buy it at an even higher price.

You know the IPO is expensive.

You know the company isn’t “worth” the IPO price based on fundamentals.

But you buy anyway because you think the momentum will carry the stock higher.

Someone paid $75. You buy at $95. You’re betting someone pays $120.

That someone pays $120. They’re betting someone pays $150.

Eventually, the chain breaks. The last person to buy is the one holding the bag.

Real-World Example: The Dotcom Bubble

In 1999-2000, companies with no business model, no revenue, just “dot com” in the name, went public.

Pets.com: a company selling pet food online.

Did they have a profitable business model? No.

Did they have sustainable competitive advantages? No.

Did they have good unit economics (i.e., making money on each sale)? Absolutely not.

But they went public anyway.

Stock soared. IPO investors made money (briefly).

Then the whole thing collapsed.

The company spent millions on a sock puppet mascot.

The company burned through $300 million and went bankrupt.

Anyone who bought the IPO at peak valuations lost everything.

The founders and early investors? They already cashed out.

Real-World Example: WeWork

In 2019, WeWork, a commercial real estate company, tried to go public.

Founder Adam Neumann was being paid $900K/month as a “consultant.”

The company was losing $3 billion annually.

Losses were accelerating.

The IPO was supposed to value the company at $47 billion.

At a $47 billion valuation, the losses would have been enormous on a per-share basis.

The IPO was pulled. Investors realized they were about to massively overpay.

Company nearly collapsed. Founder walked away with hundreds of millions in compensation.

Investors who got burned? They lost billions.

The IPO Valuation Trap

IPOs are priced based on 3 things:

1. Market conditions (is money cheap? do investors want risk right now?)

2. Investor appetite (how much hype is there?)

3. Growth projections (can the company really grow 50% annually?)

Growth projections are often wildly optimistic.

“We’ve been growing 200% YoY as a startup. That will continue forever!”

Nope.

Growth rates naturally decelerate. The company gets bigger. Market gets saturated. Competitors show up.

A company doing $100M revenue can grow 100%. A company doing $1B can’t.

But the IPO price assumes the high growth rate continues.

It almost never does.

The Valuation Multiples Trap

IPOs often trade at extreme multiples relative to:

Revenue: If a company with $500M revenue is valued at $5B, that’s 10x revenue. In some industries, that’s normal. In others, it’s insane.

Earnings: Companies IPO before they’re profitable, so earnings multiples don’t apply yet. But when they do become profitable, the earnings multiple is often absurd.

Book value: Assets on the balance sheet. IPOs often trade at 5x, 10x, even 100x book value.

These multiples compress when growth slows or when the market becomes risk-averse.

Stock falls 50-70%.

My Personal Experience

I’ve been in the market long enough to see this pattern repeat.

2000: Dotcom crash. Companies with no revenue, trading at $100/share, crash to $5.

2008: Financial crisis. Investment banks trading at 2x book value, crash to 0.5x book value.

2021: Cryptocurrency and tech bubble. Stocks with insane valuations crash 80%+.

2024: AI bubble. Companies with mostly vaporware, trading at 20x+ revenue multiples.

Every single time, the pattern is the same.

Hype. Extreme valuations. Growth projections that don’t materialize.

Stock crashes. Early investors already cashed out.

Late buyers hold the bag.

How to Price an IPO Rationally

If you want to evaluate an IPO, ignore the prospectus hype.

Look at:

1. Revenue and growth rate (what’s the actual growth, not projected)

2. Path to profitability (when will the company make money? is it realistic?)

3. Competitive landscape (who are the competitors? how competitive is the market?)

4. Comparable company valuations (what do similar, mature companies trade at?)

5. Margin of safety (how much below intrinsic value is this priced?)

If you can’t get a 20-30% discount to what you think intrinsic value is, pass.

There will be other IPOs.

Don’t be the person buying at peak hype.

What I Do

I almost never buy IPOs at the IPO price.

Too risky. Too much hype. No margin of safety.

I wait 6-12 months. Let the reality settle in.

Stock usually falls. Insiders dump shares. Hype fades.

NOW I look at the fundamentals.

NOW there might be an edge.

That’s when IPOs become interesting investments.

Next week, I’m breaking down a real-world example: SpaceX.

How limited supply, massive demand, and index fund buying create a perfect storm for hype.

See you then.

I’m going to be direct about something.

IPOs are designed to extract wealth from people like you.

Not in a illegal way. Not in a way that you can sue about. But in a systematic, intentional way.

Once you understand the wealth hierarchy in an IPO, you’ll never look at them the same way.

The Hierarchy of Winners

Let me map this out.

Tier 1: Founders and Early VCs (The Big Winners)

A founder starts a company in 2010. Gets a $10 million investment at a $50 million valuation.

In 2014, the company is growing. A VC invests $50 million at a $300 million valuation. The founder now owns less of the company, but the company is worth more.

In 2018, another investment round. $200 million at a $2 billion valuation.

In 2024, IPO. Stock prices at $75. Company valuation is $10 billion.

The founder’s original 50% stake (worth $25 million in 2010) is now worth roughly $1.5 billion.

That’s not even the whole story. The founder probably sold shares in later rounds, locked in gains along the way.

The early VC who invested $10M in 2010? That investment is now worth $500M+.

They already won. The IPO is just the cashing out party.

Tier 2: Later-Stage Investors

Companies that invested at later valuations. Maybe a $5 billion valuation.

Still made 2x their money from IPO valuation of $10 billion. Not bad. But not as good as Tier 1.

Tier 3: Early Employees

Engineers, designers, first 20 people who joined for equity.

If they got 0.1% of the company in 2010, that’s now worth $10 million.

Life-changing money. But they didn’t see the 50x returns the founders did.

And they probably already sold some equity in secondary markets along the way. Took some chips off the table.

Tier 4: The Underwriter

Goldman Sachs or Morgan Stanley makes 3-7% commission on whatever is raised.

If the company raises $1 billion in the IPO, that’s $30-70 million in fees.

For a few months of work. Not bad.

Tier 5: Institutional Buyers (Primary Market)

Large investment firms that have relationships with Goldman Sachs.

They buy at the IPO price ($75).

Stock starts trading, opens at $95.

They sell immediately. Lock in a 25% gain.

Out in 2 days.

Tier 6: Retail Investors (You)

You read about the IPO. You think “this is my shot.”

You buy on day one in the secondary market at $95.

Stock might go to $100 next week (you feel smart).

Stock might crash to $60 three months later (you feel dumb).

You’re the last person to the party and the first person to lose money.

A Real Example: The Money Flow

Let me walk through actual numbers using a made-up company.

Year 2010: The Beginning

• Founder starts company with savings and a $10M VC investment.

• Valuation: $50M

• VC owns 20%, founder owns ~50%, employees own ~30%

• VC’s $10M investment now represents a $10M ownership value.

Year 2014: Series B

• Company is growing. Revenue is $5M annually.

• New VC invests $50M.

• Valuation: $300M

• Early VC’s $10M is now worth $60M (they own 20% of $300M, but diluted by new shares).

• Founder’s stake is now worth $150M (ownership diluted but valuation increased).

Year 2018: Series C

• Revenue is $100M annually.

• Private equity invests $200M.

• Valuation: $2B

• Early VC’s original $10M is now worth $400M

• Founder’s stake is now worth $800M+

• Both have massive gains and start selling shares in secondary markets, locking in some gains.

Year 2024: IPO

• Revenue is $500M annually. Approaching profitability.

• IPO priced at $75/share.

• Valuation: $10B

• Early VC’s $10M from 2010 is now worth $2 billion (20% of $10B, accounting for dilution).

• Return: 200x in 14 years.

• Founder’s stake: now worth $5B+

• They both start selling shares at the IPO price.

You Buy Day 1 (Secondary Market)

• Stock opens trading at $95.

• You buy 100 shares at $95. Cost: $9,500.

• You’re betting it goes higher.

What Happens Next (Most Likely Scenario)

• Week 1: Stock hits $110. You’re up 15%. You feel smart.

• Month 2: Lock-up expiration approaches. Insiders start talking about potentially selling. Stock falls to $85.

• Month 3: Lock-up expires. Insiders dump shares. Stock crashes to $65.

• You’re down 31% from your buy price.

The early VC has already cashed out $100M+ from their original $10M.

The founder has already cashed out $500M+ from their stake.

You’re holding a losing position.

The Timing Advantage

The people who win from IPOs have a massive timing advantage.

They invested when the company was small and risky.

They waited years (5-10+ years sometimes) for the company to build.

By the time of the IPO, they already have 10x, 50x, 100x returns.

The IPO isn’t when they make money. The IPO is when they COLLECT their money.

You’re buying right when they’re selling.

The Math Is Brutal

Let’s say you and I each invest in a hypothetical company.

You invest $1,000 in the IPO at $95/share.

I invested $1,000 in 2010 at a pre-seed valuation of $10M. I own 0.001% of the company.

By 2024, my 0.001% is worth $100,000 (the company is now worth $10B).

I’m up 100x.

You’re down 30%.

The company didn’t change. The business is the same. The fundamentals are the same.

The only difference: timing.

Why This Happens

It’s not a conspiracy. It’s just how markets work.

Early investors take real risk. 9 out of 10 startups fail. They lose everything.

But the 1 that succeeds needs to make up for all 9 losses and then some.

So when one succeeds, early investors get massive returns.

The IPO is too late. The real money was already made.

What You Should Do Instead

If you want to be the person making 100x returns, you need to be an early investor.

Which means investing in private companies when they’re risky and uncertain.

Most people can’t do this. It requires capital, access, and risk tolerance.

But you can do the second-best thing.

Wait until the IPO hype dies down (6-12 months).

Buy when the stock has fallen 30-50%.

Now YOU have a margin of safety.

Now the risk/reward is in your favor.

That’s when IPOs become interesting.

The Pattern

This is the pattern that repeats.

Early investors get rich taking real risks.

Later investors get rich riding the wave.

IPO buyers lose money chasing the hype.

Understand the pattern and you can position yourself correctly.

Next week, I’m breaking down the pricing game. How investment banks intentionally set IPO prices too high.

See you then.

When I was starting out, I thought I understood IPOs.

A company goes public. Stock starts trading. You can buy it. Simple.

Turns out I was missing like 80% of the story.

The thing about IPOs is that they’re a wealth transfer mechanism dressed up as an opportunity. Once you understand that, everything else clicks into place.

Let me break this down.

The Basic Mechanic

An IPO is when a private company sells stock to the public for the first time. That’s the surface level definition.

But here’s what actually happens:

A company has been private. Founders own it. Early investors own pieces of it. Employees might have stock options.

Nobody can easily sell these shares. The stock is illiquid. If you own 5% of a private company, that 5% is basically stuck.

Then the company decides to go public. Through an investment bank (called an “underwriter”), they sell some shares to the public.

Now those shares trade on an exchange. Supply and demand set the price. You can buy and sell anytime.

For the company, this is huge. Founders can finally sell shares and diversify. Employees can finally cash out stock options. The company can raise capital.

For you, it sounds like an opportunity. Finally, you can own a piece of a cool company.

But here’s what you’re missing.

The Money Trail

Let me walk you through a real scenario.

It’s 2012. A startup launches. Let’s call it “TechCo.”

Early venture capitalists believe in the founding team. They invest $10 million at a $100 million valuation. They own 10% of the company.

For the next five years, TechCo grows. Revenue goes from zero to $50 million. Profitability is still off, but the growth is real.

In 2017, a later-stage VC invests $100 million at a $1 billion valuation. They own 10% of the company (which has now expanded to more shares).

More growth. More revenue. By 2023, the company is doing $500 million in revenue. Still not profitable, but the trajectory is clear.

A private equity firm invests $500 million at a $5 billion valuation.

Now, in 2024, the company decides to go public.

Investment bank (let’s say Goldman Sachs) gets hired. They do all the paperwork, file with the SEC, create a prospectus showing the company’s business and financials.

Then they set the IPO price.

They look at growth rates, market opportunity, comparable public companies. They price it at $75 per share.

At that price, the company’s valuation is $10 billion.

The IPO is announced. Goldman sells shares to their big clients (pension funds, hedge funds, endowments) at $75.

Stock starts trading publicly. On day one, huge demand. Everyone wants in. Stock opens at $95.

Now let’s trace the money.

The early VC from 2012: Invested $10M at a $100M valuation. Owned 10% of the company. Today, that 10% (which has been diluted by later funding rounds) is worth roughly $400-500M. They already made $400M+. They start selling their shares at $95. They’re cashing out.

The later-stage VC from 2017: Invested $100M at a $1B valuation. Owned 10% of that valuation. Today, that’s worth roughly $200-300M. They also made $100M+. They’re also selling.

The private equity firm from 2023: Invested $500M at a $5B valuation. Owned 10%. Today that’s worth $250M+ profit. Also selling.

You, buying on day one: You see the stock is at $95 and think this is your chance. You buy 100 shares at $95. You’ve just paid $9,500.

You’re hoping the stock goes higher. Maybe it does. Maybe it crashes.

But here’s the key insight: The early money already won. They invested when the company was small and unproven. They took real risk. They’re now cashing out at peak hype.

You’re buying when everyone’s excited. When the upside has already largely been captured.

The Lock-Up Period (The Hidden Trap)

After an IPO, there’s usually a 6-month “lock-up period.”

During this time, insiders (founders, employees, early investors) can’t sell their shares.

It’s supposedly to prevent a flood of selling that would crash the stock immediately after the IPO.

But here’s what really happens:

For 6 months, the stock trades. Early hype fades. Reality sets in.

The company has its first earnings call as a public company. Maybe they beat expectations. Maybe they miss. Either way, the stock stabilizes.

Six months pass.

Lock-up expiration date arrives.

Suddenly, insiders can sell.

And they do. Millions of shares hit the market. Supply explodes.

Demand doesn’t explode proportionally. Stock price usually falls 20-40%.

This is predictable. Happens almost every time. Yet people are still surprised by it.

If you held the IPO for 6 months and the stock was up 30%, lock-up expiration might bring it down to +10% or even negative.

Why IPOs Are Usually Expensive

The underwriter has one job: maximize the IPO price.

Why? Because they make a commission (usually 3-7%) on whatever is raised.

If the IPO raises $500 million, the underwriter makes $15-35 million.

They want that number as high as possible.

So they price the IPO aggressively. They highlight the growth potential. They minimize the risks.

They get the price as high as the market will bear.

Result: the IPO is almost always overpriced relative to fundamentals.

Not by a little. By a lot.

The company’s projections assume perfect execution. Any misstep and the stock falls.

The Real Pattern

This is the pattern I’ve seen over and over:

1. Company builds something real. Takes years. Early investors take real risk. Most startups fail.

2. Company hits scale. Revenue growth. Market traction. Starts to look real.

3. Later investors pile in. Private equity, growth stage VCs. Buy shares at high valuations. But lower than the IPO will be.

4. IPO happens. Investment bank prices it based on maximum optimism.

5. Stock pops on day one. Everyone FOMO. Stock goes from $75 to $95 in one day.

6. Early investors start selling. They’ve already made their money 10x or 20x. They’re cashing out.

7. Stock stabilizes then falls. Reality sets in. Growth slows. Valuation comes down.

8. You’re left holding the bag. You bought at $95. Stock is now $65.

This happens over and over and over.

The Exception

There are exceptions. Amazon IPO’d in 1997 at $18. Stock was expensive at the time.

Analysts called it overvalued. It tripled in price over the next few years.

Then crashed in the dotcom bubble. Then recovered.

Long-term, if you held Amazon through all of it, you made an absolute fortune.

Apple IPO’d in 1980. Stock was expensive. People thought you were insane to buy it at those valuations.

Decades later, Apple is one of the most valuable companies ever.

So yes, some IPOs work out. But they’re not the norm.

The norm is: IPO at peak valuation, stock falls, early investors already cashed out.

What I Do

I almost never buy IPOs.

Not because they’re always bad (some aren’t), but because the odds are against you and the risk/reward is poor.

I wait 6-12 months. Let lock-up expire. Let insiders dump shares.

Stock usually falls 30-50%.

NOW the risk/reward is interesting.

NOW there might be a margin of safety.

NOW I might have an edge.

That’s when I look seriously.

By then, the hype is gone. The stock is trading on fundamentals.

That’s when IPOs become interesting.

Next Week

Next time, I’m breaking down who actually wins from IPOs.

Spoiler: it’s not you.

But understanding who does win and why will fundamentally change how you think about going public companies.

See you then.

Systems First (Or Why People Walked Out of My Presentations)

Years ago, when I used to pitch my investment course to live audiences, the same thing happened almost every single time.

I would stand up and explain that my goal was to teach people how to invest and trade successfully. Not just hand them random stock picks, but give them actual tools, systems, and strategies that could work for decades.

Within minutes, someone would interrupt.

“So what stocks should I buy right now?”

Or, “Is Apple a buy?”

Maybe it was Microsoft. Maybe Meta. Maybe whatever stock was exploding on social media that week.

I would politely explain that I don’t tout hot stocks. Anyone can screen ticker symbols on the internet. What matters is understanding why you are investing, how markets work, and what system you are using to make decisions.

And then something predictable happened.

About 10 minutes into the presentation, people started leaving.

Once they realized I wasn’t about to hand out a magical list of “stocks that will 10x by next Tuesday,” many lost interest. By the 30-minute mark, only a handful remained.

Ironically, those were often the people who took my course and succeeded. Some wildly. Far outperforming me.

The Entertainment Problem

Because most investors and traders never develop an actual philosophy, system, or framework.

They bounce from one exciting story to the next. Chasing momentum, hype, influencers, Reddit threads, TikToks, and “to the moon” predictions.

The stock market becomes entertainment. Or worse, gambling.

Now, to be fair, randomness can work sometimes. Buying whatever is hot during a strong bull market can make people feel like geniuses. Momentum is real. Speculation can be wildly profitable for periods of time.

But over the long run, chaos is not a strategy.

Most People Start Backwards

Most people approach investing backward. They start with the stock first.

“What’s hot? What’s trending? What’s everybody buying?”

Only afterward do they try to force that stock into some half-formed “strategy” they invented five minutes earlier.

That’s upside down.

A far better approach is to first develop a rational investment philosophy. A repeatable system based on logic, evidence, psychology, market behavior, valuation, momentum, compounding, or whatever principles resonate with you.

Then, and only then, do you search for investments that fit your criteria.

Every Great Investor Had a System

The greatest investors in history all had systems.

Some focused on value. Some focused on momentum. Some focused on macroeconomics. Some focused on compounders. Some focused on special situations.

But they had a framework.

They weren’t simply throwing darts at a wall while refreshing social media.

What This Actually Looks Like

At Compounders Stock Market Academy, that is exactly what we teach.

We begin with the concept of compounding, the heart and soul of long-term wealth creation. We explore how markets actually function and derive practical strategies from those underlying mechanics.

Then we move into identifying great businesses, understanding competitive advantages, developing trading systems, analyzing psychology and behavioral biases, studying economics and special situations, and eventually even stock options.

We also discuss edge, the critical question every investor should ask: “What advantage do I actually have?”

And because markets constantly evolve, we are building a new mini-course focused on AI and investing, exploring how intelligent systems may transform trading, research, and portfolio management in the years ahead.

Most importantly, several times each month, we hold live online office hours where we apply these concepts in real time.

The Bottom Line

Investing is not about memorizing stock picks.

It’s about building a repeatable process that can survive uncertainty, volatility, hype cycles, fear, greed, recessions, bubbles, and everything in between.

Stocks change. Narratives change. Markets change.

But a strong system can endure.

If you want to learn how to build one, you can find more at www.compoundersacademy.com.

Is the Stock Market Completely Insane Right Now?

War in Iran. The Strait of Hormuz blockaded. Twenty percent of the world’s oil supply suddenly unavailable. Fertilizer and helium getting squeezed. Inflation heading up, not down.

And yet, the major U.S. stock indexes just hit all-time highs.

So naturally: has the stock market completely lost its mind?

Maybe.

The market swings between euphoria, panic, delusion, and despair like it’s auditioning for a soap opera. But we should be careful about giving it too much personality.

Does the market have emotions? A brain? A soul?

Probably not.

At the end of the day, it is what it is.

But that answer feels too passive. If the market is just something to ride, what’s the point?

And there IS a point.

Yes, the stock market can get nutty. That’s exactly why understanding how it actually works matters more than just reacting to headlines.

So back to the question: Is the stock market currently nuts?

A Few Rational Reasons It’s Been Strangely Buoyant

The Market Lives in the Future

Stocks don’t price today. They price tomorrow.

Investors are likely betting that the Strait of Hormuz situation resolves faster than feared. In that imagined future, AI, robotics, and quantum computing are humming along toward something that looks like economic nirvana.

Earnings Have Been Strong

Despite the chaos, many S&P 500 companies, especially in AI semiconductors and energy, are posting solid earnings. As long as profits hold up, the market has a foundation.

The “One Big Beautiful Bill” Effect

The 2025 legislation is quietly doing heavy lifting. Business-friendly provisions are fueling massive spending on AI infrastructure: giant data centers, advanced chips, energy demand.

Some futurists claim we’ll see data centers in space.

If that happens, I’m investing in astronaut electricians.

A Few Stocks Are Doing Most of the Work

About 10 mega-cap AI-driven companies are responsible for roughly 40 percent of the S&P 500’s gains. Historically, that number is closer to 19 percent.

In other words, the “market” is soaring on the shoulders of a very small, very powerful crowd.

What About the Future?

If the market is painting a picture of endless sunshine, reality tends to be messier.

I don’t have a crystal ball. Anyone who says they do is probably selling one.

But here are a few educated guesses:

The AI spending boom will slow eventually. Timing? Unknown.

Some high-flying AI stocks will likely come back down to earth.

Geopolitical tensions will matter more to markets than they do today.

Longer term, rising deficits, global debt, and climate pressures could weigh on growth unless innovation rides to the rescue.

And yet, over 10 years, the market will likely be significantly higher than today.

Subject to change. Always subject to change.

So Is the Stock Market Nuts?

A little bit, yes.

A little bit, no.

And that’s exactly why understanding it, not just reacting to it, is where the real edge lies.

Most people watch the market move and have no idea why. They panic when it drops. They chase when it rises. They wait for clarity that never comes.

That’s not investing. That’s guessing.

If you want to understand how the market actually behaves and how to make decisions without relying on headlines or luck, that’s what I teach inside Compounders Stock Market Academy.

Learn more: www.compoundersacademy.com

Time To Buy?

War in Iran. Higher oil prices. The Strait of Hormuz under threat. A dysfunctional Congress. Inflation. Weak economic growth.

Is it time to buy stocks? Go all in?

It is very difficult to time the market and identify the precise inflection point when stocks shift from a downtrend to an uptrend.

At the same time, there is a well-known maxim: the best time to buy is when there is “blood in the streets.” The phrase is often attributed to Baron de Rothschild and is generally understood to mean that one should buy when others are panicking.

So the question becomes: are we there yet?

A few days ago, most major stock indexes entered what is referred to as “correction” territory, meaning they declined by at least 10% from their highs.

That is not panic.

Corrections occur regularly, often every one or two years.

Real panic tends to occur when markets decline by 20% or more, which is typically classified as a bear market.

At the same time, it is worth remembering that markets often experience their strongest upward moves shortly after their most severe declines.

That creates a tension.

You do not want to be fully out of the market.
But you also do not want to commit too aggressively too early.

So what should one do?

I can only explain what I do.

As markets decline—even in a correction—I begin to buy in small to modest amounts, depending on my available cash.

I do not go all in.

I reserve a meaningful amount of what traders refer to as “dry powder”—cash held in money market funds or short-term Treasury instruments.

That capital is there for a reason.

If conditions deteriorate further, or if true panic emerges, I want the ability to act.

There is another factor that should not be ignored.

Unintended consequences.

Events such as the Iran War rarely unfold in a straight line. They produce secondary and tertiary effects that are difficult, if not impossible, to predict in advance.

Those developments can create additional downside.

They can also create opportunity.

But by definition, they are not foreseeable.

You do not need to capture every move in the market.

You do not need to identify the exact bottom.

A disciplined approach—adding to positions incrementally and allowing investments time to develop—is often more effective than attempting to time inflection points precisely.

If I see genuine panic, I will likely become more aggressive. In that environment, I may deploy a larger portion of my capital.

If conditions remain uncertain but not extreme, I will continue to add selectively and maintain flexibility.

The objective is not to predict.

The objective is to position.

If You Want to Learn How to Approach Markets Like This

If you want to understand how to evaluate market conditions, manage risk, and build positions without relying on guesswork, that is exactly what we focus on inside Compounders.

👉 Learn more here: www.compoundersacademy.com

The Iran War offers three fundamental lessons about investing during geopolitical events.

Each of which I’ve discussed in prior blogs, but they’re worth repeating because most investors ignore them.

Lesson 1: Geopolitical Chaos Creates Opportunity

“Wait,” you might be thinking. “Isn’t it immoral to profit when others are suffering?”

That’s a personal question guided by your own moral code.

But here’s the reality: markets are going to move whether you participate or not. The question isn’t whether it’s moral to profit. The question is whether you want to be the person who understands what’s happening or the person who gets caught off guard.

Almost every conflict or disaster throughout my investing lifetime has presented clear trading opportunities.

When the news is bleak and everyone is wringing their hands in hopelessness, that is when I buy quality stocks or broad-based ETFs.

I don’t try to time the very bottom. I don’t worry about catching a falling knife.

I buy when the stock markets are down and the tendency is to sell or panic.

Chances are, the markets will recover from the declines precipitated by the geopolitical event.

Case in point: the Iran war. Yesterday, the S&P 500 hit a record high, having more than recovered from its almost 10% decline just two to three weeks ago.

Lesson 2: Position Sizing Matters More Than Timing

Here’s what most people get wrong.

They wait and wait for the “right moment” to buy. Then when things look truly terrible, they either freeze or go all in.

Both are mistakes.

I don’t deploy all my capital at once during a crisis. I use what traders call “dry powder” strategically.

When markets drop 8 to 10 percent, I typically deploy 20 to 30 percent of my available cash. Not everything. Just enough to start building positions.

If things get worse and markets drop further, I have capital left to add more.

If markets recover quickly, I’ve participated in the upside without overcommitting.

This approach removes the pressure to be perfect. You don’t need to catch the exact bottom. You just need to be disciplined about how much you commit and when.

The goal isn’t precision. The goal is participation without recklessness.

Lesson 3: Prepare for Unintended Consequences

Geopolitical events never resolve cleanly.

They create ripple effects that are difficult, often impossible, to predict in advance.

Consider 9/11. The attacks themselves were devastating. But the unintended consequences, the prolonged wars in Iraq and Afghanistan, created secondary market impacts for years.

Or the 2008 financial crisis. It didn’t just affect banks. It triggered political instability across Europe, reshaped entire economies, and changed monetary policy for over a decade.

The Iran situation will be no different.

We don’t know what the second-order and third-order effects will be. But we can predict with high confidence that they will come.

Some of these unintended consequences might propel stocks higher. But often they drive the indexes lower.

This is why I keep capital in reserve even after I start buying. Because the initial event is rarely the final event.

While each market-moving situation needs to be evaluated on its own merits, steep declines driven by geopolitical chaos should present both long-term investing and shorter-term trading opportunities.

Yes, good stock market times will return again. But you need to be positioned to take advantage of them when they do.

These Are Not Laws

Are these lessons formulated as trading or investing laws?

No.

Investing isn’t physics. You can’t reduce it to laws and formulas.

Investing and trading are human behaviors, influenced by all kinds of variables, many unanticipated, constantly evolving. They are also increasingly driven by algorithms and AI agents, which adds another layer of unpredictability.

All kinds of surprises can hit the stock market like a board slamming the back of your head that you don’t see coming.

But It’s Not All Randomness and Chaos

This doesn’t mean it’s all randomness and chaos.

The lessons learned from geopolitics are principles that succeed most of the time. They can be folded into your own investing or trading disciplines and strategies.

And this is the most important part of investing and trading: be guided by strategies and principles that you carefully develop and evolve over time, as the world continuously changes.

Not your gut feeling.

Not panic.

Not hope.

Strategy.

If you want to learn how to think about markets like this, how to manage risk during volatility, and how to build a system instead of reacting to headlines, that’s exactly what I teach inside Compounders Stock Market Academy.

👉 Learn more: www.compoundersacademy.com

Everyone’s talking about oil prices right now. The Iran war is driving them up. News outlets throw around numbers like “$105 per barrel.”

But what does that actually mean? And who sets it?

Here’s what most people don’t know.

It’s Not One Price

When you hear “Oil is $105 per barrel,” that’s not a universal price for all oil or oil products.

Different gas stations around the world charge different prices for gasoline right now. Gasoline is just one product made from crude oil distillation, with some additives thrown in.

Actually, there are thousands of products based on oil distillation. Automotive fuel. Diesel. Airplane fuel. Fertilizers. Your Chapstick. Even the synthetic fibers in your clothing.

So when oil prices move, almost everything gets more expensive. Directly or indirectly.

What “Price of Oil” Actually Means

The “price of oil” usually refers only to crude oil. Not the refined products. But everything else is based on the price of crude.

Crude oil is divided into two benchmarks: Brent crude (global) and WTI or “West Texas Intermediate” (U.S.). Brent is usually more expensive than WTI.

A “barrel” is 42 U.S. gallons (about 159 liters). It’s just a unit of measurement, not a physical wooden barrel. Oil today is stored and transported via tanks, pipelines, and ships.

Here’s What Matters

Oil prices are set by supply and demand in financial markets by traders. Not in boardrooms by oil companies.

The latest price is simply the amount at which buyers and sellers agree to trade a barrel.

Oil prices are forward-looking. They reflect expectations about supply disruptions (like the Strait of Hormuz blockage), economic growth forecasts, and production decisions (when the U.S., OPEC, or Russia decides to pump more or less).

This is why the Iran war can move prices immediately.

If oil fields, refineries, and transportation routes remain in jeopardy, prices soar. And everything else gets more expensive. Bad for stocks.

The Trading Opportunity

But oil shocks always end. Often resulting in big drops in oil prices and dramatic stock market rallies.

The big takeaway: if oil prices soar to very uncomfortable heights, that usually signals a turning point. The top of the roller coaster.

And often a good time to buy stocks.

The price of oil is foundational to the world economy. It’s a live signal of global risk, growth, and inflation.

At Compounders Stock Market Academy, we teach you how to read these market signals so you can make informed decisions instead of reacting to headlines.

Ready to understand what actually moves markets? Join Compounders and stop guessing.

This past weekend, the headlines were brutal.

Straits of Hormuz blocked. Oil refiners blown up. World War III at our doorstep. Desalination plants vulnerable to attack.

If you listened to the news, selling everything Monday morning would have seemed rational.

Except the market apparently missed the memo.

Monday close: Dow up over 400 points. S&P 500 up almost 70 points.

The Headline Trading Trap

Here’s what most investors don’t understand: trading on headlines is nearly impossible to get right consistently.

Headlines feel like information. They create urgency. And urgency creates action.

But urgency without framework is just panic with a different name.

What I Did Instead

I’ve developed simple principles for moments like this:

The darkest days often come just before market propulsion. If you’re out of the market because you’re scared, you’ll miss the best trading days. Geopolitical events create profitable opportunities because panic creates mispricing.

Don’t sell during bad times. Sell during periods of froth. Keep your eyes on the compounding prize.

Based on these principles, I bought. But not all-in.

Economic forces almost always overshadow geopolitical ones. And economic cracks start forming after relentless bullishness.

The Real Problem

If you’re feeling exhilarated when you buy or devastated when you sell, you’re doing it wrong.

Those emotions signal you’re making decisions with your gut instead of your framework.

Most investors will keep trading headlines. They’ll sell on fear and buy on euphoria.

And they’ll underperform.

Because trading headlines isn’t a strategy. It’s a reflex. And reflexes don’t compound wealth.

At Compounders Stock Market Academy, we teach you how to separate signal from noise so you can make decisions based on structure rather than emotion.

Ready to stop reacting? Join Compounders and learn how to think like a professional instead of trading like the crowd.

Think the smart move is selling everything during scary markets and jumping back in when things look sunny?

I have some unfortunate news.

Two pieces of market data make this approach far harder than it sounds.

Most Gains Happen in Remarkably Few Days

On average, about 10 trading days per year account for most of that year’s market gains. That’s roughly 4% of all trading days.

Think about that. If you miss those 10 days because you were sitting in cash waiting for the “right moment,” your annual performance takes a serious hit.

Over 30 years, the numbers get more striking. Missing the best 10 trading days eliminates about 40-60% of your total potential gains. Missing the best 20 days? You’ve wiped out 60-70% of what you could have earned.

So if you’re planning to time the market, you need to be fully invested during roughly 10 specific days out of 7,500 trading days over three decades.

Good luck with that.

Even with all the computing power in the world, consistently predicting which 10 days those will be is virtually impossible. The information you’d need simply doesn’t exist beforehand.

The Best Days Hide in the Worst Weeks

You might think the best trading days happen during calm, pleasant markets when everything feels safe. That would make timing easier.

Unfortunately, the opposite happens.

Looking at decades of S&P 500 data, 60-70% of the best trading days fall within two weeks of the worst trading days. Nearly half of the best days occur within just one week of major declines.

Read that again.

The explosive gains you’re trying to capture happen either right in the middle of, or very close to, the chaos you’re trying to avoid.

The strongest recovery days occur when markets feel most dangerous. Which is exactly when most people are least willing to invest.

If you’re waiting for blue skies before you get back in, you’ve already missed it.

Why Timing Doesn’t Work

Here’s the fundamental problem: you need to make two correct decisions.

First, when to get out. Then, when to get back in.

Getting the exit right but missing the re-entry? You’ve accomplished nothing. Probably made things worse because you’re sitting on cash while the market starts its recovery without you. And the early recovery days are often explosive.

Doing this correctly, repeatedly, over decades? The track record suggests it’s not happening. Not for professionals with teams of analysts. Certainly not for individual investors.

The problem comes down to how information works in markets. The clarity and precision you need to make perfect timing decisions only exists in hindsight or the movies.

What About Bubble Conditions?

Does this mean you should be 100% invested all the time?

No.

When valuations get extreme, when you’re watching obvious frothy or bubble behavior, reducing equity exposure and holding cash makes sense. I’ve done it myself.

The trick: identifying overvaluation and timing the exact correction are two different problems.

Markets can stay overvalued longer than you think. What looks expensive can get more expensive. Eventually the decline comes, but predicting exactly when? That’s the hard part.

What Actually Works

For most investors, staying consistently invested through full market cycles beats trying to jump in and out at perfect moments.

You can still use valuation to inform position sizing and asset allocation. Just don’t use it to make dramatic all-or-nothing timing calls.

Volatility isn’t something to fear. Embrace it! Profit from it. It’s the price of admission for long-term equity returns.

Those scary periods you want to escape? They’re often right before the strongest gains.

At Compounders Stock Market Academy, we teach frameworks for managing risk and position size that are easy to implement, without getting tangled up in impossible market timing.

Time in the market beats timing the market. Sounds like a bumper sticker, but it’s backed by decades of data showing how returns actually distribute.

Ready to stop timing and start investing? Join Compounders.

Meta Platforms, or just Meta, was down almost 8% after losing a lawsuit in which it will need to pay less than $6 million in damages. For Meta, the damages are minuscule, yet the lawsuit is gigantic, possibly a game-changer. So: buy, sell, or hold?

Meta owns Facebook, Instagram, and WhatsApp. Google was also a defendant, but most of the losses fell on Meta.

The lawsuit (K.G.M. v. Meta) was brought by a teenage/young woman who convinced a jury that Meta intentionally designed its platforms—the structure of the platforms, not the content—to be addictive, and thus toxic. Features such as infinite scroll, algorithmic recommendations, push notifications, and autoplay video were alleged to contribute to her dependence. That dependence is linked to the release of neurotransmitters in the brain, such as dopamine, which produces a momentary high before dissipating. Then the user seeks another, and another, as the desire for these fleeting rewards accumulates. The overall result, according to the plaintiff, was depression, heightened anxiety, and lowered self-esteem.

There are laws that protect social media companies from liability tied to content. But in this lawsuit, it is not the content that is alleged to have created the addiction. Instead, it is the way the platform itself was built.

This is probably just the beginning. We should expect more plaintiffs to emerge, bringing similar claims against the major social media companies. We should also expect state involvement, and possibly federal action. Congress and even the executive branch could eventually weigh in. Deep-pocketed companies tend to attract litigation, and once a theory like this gains traction, it rarely stops with a single case.

On top of that, Meta and other platforms may be forced to modify or remove features that are alleged to be addiction-inducing. If that happens, it could directly impact engagement. And if engagement declines, advertisers lose some of the compulsion-driven dynamics they rely on. That, in turn, could affect revenue and profitability.

Meta will, of course, appeal. It will argue that the alleged harm arises from content, not structure, and that it is protected under existing law. It may raise First Amendment defenses. It will likely argue that users retain free will and are not compelled to engage with its platforms. All of that will play out over time.

But the key point is this: the outcome is uncertain.

And markets do not like uncertainty.

So: buy, sell, or hold?

I do not have a crystal ball, but I prefer to invest in situations where success is easier to evaluate. Right now, Meta is too difficult. The future is too murky, and the range of potential outcomes is too wide.

If I own Meta and have a profit, I would be inclined to sell at least some and lock it in, and move on to an investment where the path is clearer. If I hold Meta at a loss, I would likely step aside, wait to see how this develops, and redeploy capital into something with a higher probability of success.

You might argue that the stock is down, and that this is exactly when one should invest—when there is “blood in the streets.” Sometimes that is correct. But not always. A declining price, by itself, is not a sufficient reason to buy. Some stocks go down, down, and then out of business. For individual equities, you need more than a lower price. You need a clear case.

At some point, Meta may present a compelling turnaround opportunity. But in my view, that point has not yet arrived.

If you want to learn how to think through situations like this—how to evaluate uncertainty, risk, and second-order effects in the market—we cover that in depth inside Compounders.

👉 Learn more here: www.compoundersacademy.com

There is a strange reality in investing that few people want to admit.

Most investors underperform. Most money managers underperform. Many traders actually lose money during great times and lose even more during downturns.

More and more individual traders have started turning away from traditional financial markets entirely, moving to prediction markets instead.

So what is going on?

Wall Street sells a simple story: Leave it to the professionals.

But here is the truth. Most professionals drive portfolios toward closet indexing with high fees. They over-diversify into mediocrity. They are driven by career risk, not investment conviction.

Money management can be an extremely lucrative career. The pros are the ones with the yachts. To preserve those cushy livelihoods, they often compromise whatever ideals they started with and end up asking a different question than you think.

Not: What is the best investment?

But: What can I own that won’t get me fired?

The best investments are sometimes volatile in the short to medium term. Clients hate seeing their portfolios decline. So professionals hug benchmarks, rotate narratives, and charge one to two percent plus performance fees for delivering average returns. Or worse.

And even when clients underperform, the system still wins.

Assets under management going up means more fees. The market going down does not stop the flow of fees. Clients leave? New clients get onboarded.

The system is not designed for your compounding. It is designed for their revenue stability.

The Individual Investor Problem

You would think individuals could just cut out the middleman and win.

Most do not.

Because they trade like this: buy what is going up, sell what just dropped, chase narratives, panic on volatility.

And this holds true for many professionals too.

In other words, no structured investment framework. No thought-out strategy. Just reacting, not operating.

Professionals are constrained by incentives. Individuals are driven by emotion and biases. Either way, the result is underperformance.

Even when a professional does outperform before fees and taxes, that outperformance often turns to underperformance once the customer pays those expenses.

What Actually Works

Successful investing is not about picking hot stocks, timing headlines, or feeling the market.

The stock market could not care less about your feelings.

It is about having a repeatable system.

How do you value an asset? When do you buy? When do you sell? How do macro conditions affect your positioning? What must be true for you to be right?

Without this, you are not investing. You are guessing.

At Compounders Stock Market Academy, I do not sell hype. I build frameworks. Because once you have a structured approach, you stop chasing. You start compounding. You feel secure. You think in probabilities, not emotions.

And most importantly, you stop playing Wall Street’s game and start playing your own.

Learn more: www.compoundersacademy.com

Modern finance has a quiet assumption: investing is too complicated for ordinary people.

The implication? You need professionals.

Investment advisers, fund managers, financial planners all position themselves as interpreters who guide you through market chaos.

You can dabble on your own. But serious goals like retirement? Those require professionals. And professionals charge fees.

The Incentive Problem

“We do better when you do better” sounds fair. But the structure isn’t symmetrical.

If markets decline, fees don’t disappear. No refunds. No clawbacks. If markets rise, they collect more. If markets fall, they still collect.

The Performance Problem

Most professional money managers underperform the market. Despite research teams, data systems, and institutional networks.

A 1% annual fee doesn’t sound like much. Over decades on a $500,000 portfolio earning 7% annually, it can cost hundreds of thousands. Often high six figures. Sometimes over a million for larger portfolios.

Paid regardless of results.

The Alternative

If professionals with enormous resources struggle to outperform, why outsource your financial future?

Education.

Learning to manage your own capital removes fees and develops independent thinking. When you understand how markets function, you can evaluate risk yourself, recognize incentives, and make decisions based on knowledge instead of narratives.

The Education Gap

High schools rarely cover markets meaningfully. Colleges emphasize academic frameworks that don’t teach how real markets behave. Brokerages offer fragmented promotional materials designed to keep you engaged, not make you independent.

The system provides little practical education about the skill that determines whether your capital grows.

Why Compounders Exists

We teach how markets actually work. Fundamentals: how money moves through financial systems, how stocks and sectors behave, how risk is managed. Then individual stock analysis, trading frameworks, options strategies, special situations.

Every two weeks, live sessions analyzing current market conditions in real time.

Once you understand market mechanics, you stop relying on financial intermediaries.

Join Compounders and learn to invest independently.