When Investing Becomes A Dangerous Mistake

Recently I watched this video on "29 years old and already $250,000 in debt".  The video discuss the investing climate in South Korea, especially amongst the younger retail investors aged 20s to 30s.  Based on the video, studies have shown that the investing mentality in the younger Koreans are geared towards 'gambling mindset' instead of investing.  

Many of the Koreans in the 20s are 30s are dabbling in cryptocurrencies and penny stocks.  Do not get me wrong, there is nothing wrong with these investment vehicles, but the main problem lies with them investing with leverage, and getting loans to 'invest'.  This is a big red flag in investing.  Borrowing money to invest is very dangerous because equities are volatile, more so for cryptocurrencies and penny stocks.  Although volatility creates opportunities for traders, but it remains as a double edged sword, either you "go big, or go home".  Once the investments do not go in the direction one 'bet' on, the losses will be out of hand due to leverage.

However, according to the video, these young investors in Korea are not investing.  They do not adhere to the basics of investing.  They are not diversifying their investments, mostly betting 'all-in' into the cryptocurrencies and penny stocks, without thorough knowledge of what they are putting their monies into.  They are not setting any stop losses.  They are all in debt (many young Koreans are in huge losses and debt due to the prior collapse of crypto Luna), and despite that, still finding money through loans and more debt to fuel their 'investments'.  This has already morphed into an addiction.  

In fact, medical studies by psychiatrists show that these young Koreans' brain waves shows that they are indeed addicted to gambling, not investing.  Investigation shows that "their frontal lobe is weak, showing the loss of self control and thus individuals tend to act compulsively".  Once they are addicted to the 'excitement' of the high risk, high rewards in the volatility, "over-stimuli by excess dopamine in the central nervous system in the brain consistently is like drug addiction and it damages the 'compensation circuit' responsible for the feeling of satisfaction, and over time, the brain craves for more stimuli, causing individuals to make more impulsive 'investments' to keep the thrill and excitement coming, and that usually do not end well".

After watching the video, I thought it would be good for me to write this post as a constant reminder for myself to invest prudently, patiently and be pragmatic (words of wisdom from AK!).  It is important to understand the goal in investing.  Personally, it is to be prudent, grow my net-worth slowly and steadily, and most importantly, do not lose my capital.  One important way to prevent loss of capital is to diversify my investments.  Although there is the say "diversification is for idiots", but I would rather invest in a way that I am comfortable in, instead of concentrating in a few investments.  Never be 'married' to any stock!  Nonetheless, I believe it's tough as conviction towards a stock or blind faith towards one, it's treading a fine line.  Just got to constantly review the fundamentals and the earning reports every quarter, and scrutinize every number.  Do note that this post is not to cast the Koreans in a bad light, as I believe every country has its own share of citizens who blurred the lines between investing and gambling.  

I believe the main take home message for myself after watching this video is to be a responsible individual.  Invest responsibly.  Do not take on excessive debt for investing because when the tide turns against you, you are not only ruining your future, but also the lives of your loved ones.  Barista FIRE, here I come...!