The Seven Biggest Pitfalls in US Stocks: How I Iterated

1⃣️When stocks are surging rapidly, most people are afraid to buy. They want to wait for a pullback before buying, or wait until it drops to a certain level.

The problem is that when the stock actually pulls back, the trend is gone. Buying in means catching a falling knife. Once you're in, you get trapped. After being stuck with losses of dozens of percentage points, these people start wailing, claiming that storage is a scam and the cycle has ended.

2⃣️For stocks that have already been hyped, looking at financial reports and fooling yourself into thinking the reports are good and that you are practicing value investing is a mistake. Many private equity bosses often make this same error.

For example, regarding Pop Mart, Yangtze Optical Fibre, and Nokia—three stocks I mentioned—even many fundamental analysts thought the financial reports were decent and advised holding them, yet the stock prices continued to drift lower.

The logic is simple: these stocks had already been hyped in advance and had multiplied several times over. No matter how good the financial report is, it cannot stop the trend of bursting valuation bubbles.

To put it another way, consider NVIDIA's financial reports. Are they good? They consistently exceed expectations significantly. Yet, has the stock changed much over the past year or so? No.

An exceptionally good financial report serves merely as a safety net. It works for stocks that haven't risen or been hyped yet, but for those that have, it only serves as an excuse for distribution.

3⃣️Long-term options trading is essentially gambling. The logic behind long-term options is to bet that the stock will recover within six months or a year. This strategy works in bull markets or sideways markets, but in a bear market, it leads to total annihilation, resulting in even greater losses than short-term options.

This is because buying a six-month or one-year option typically costs 20% of the stock price. Essentially, after a year passes, that 20% is completely evaporated, leaving nothing.
Let me give an example. Sometimes recovery is extremely slow. Take Duolingo or BMNR; nearly a year has passed with no recovery, and your one-year option is close to zero. Moreover, the IV (Implied Volatility) was sky-high, meaning the premium you paid could have been around 40 percentage points.

Take Amazon or Google, for instance. They rebounded recently, so if you held long-term options, you made money and felt clever. But what if they hadn't rebounded? What about long-term decay and gradual decline? Once people make money, they forget fear and risk.

4⃣️Buying small-cap stocks based on concepts you don't understand, hoping for a 10x or 100x return, usually ends in a 50% or 90% cut, followed by angry stop-loss selling.

The essence is this: first, you don't understand the stock; second, you don't understand the logic others are preaching. Third, their logic might be wrong. If you believe it, you accept it as truth without verification. Even if the logic is sound, the market may not agree. Buying small-caps in the US stock market is like buying meme coins in crypto; the probability of success is very low, and going to zero is the norm.
The funniest part is that one day I listed some junk stocks that had dropped tens of percent, yet many people accused me of being bearish, claiming these stocks would rise. With such cognition, losing money is normal. The biggest taboo in stock trading is lacking independent judgment and blindly following the crowd.

5⃣️Buying weak stocks. Choice is more important than effort.

If someone has proven themselves incompetent and weak in the past, insisting "I think they can do it, let's give them another chance, maybe they'll suddenly surge" is pure wishful thinking. If they were truly capable, they would have proven it over the past few years. There's no need to gamble on an uncertain future to deceive yourself.

Yes, I'm talking about Pinduoduo and Chinese concept stocks, which have been weak for years. If you insist that taking a 'drug' will make them soar, once the effect wears off, won't they slump again?
Some people love to dream, saying that as long as Pinduoduo's Temu becomes profitable, management buys back shares, and dividends are paid, the stock price will surely skyrocket.

But they haven't paid dividends or bought back shares in five years. Why do you think they will start doing so soon? Are you Huang Zheng? Or are you management? It's like imagining a stingy person suddenly deciding to generously give you millions out of kindness. Is there any difference?

6⃣️Buying leverage. Actually, even margin trading should be avoided. Leverage amplifies returns in one-way trends, but in volatile or declining markets, you lose everything.

I understood this two years ago. I said then that you shouldn't touch 2x or 3x leveraged products. The decay is severe. I don't know the exact numbers, but I know that the higher the volatility, the greater the decay.

A low-volatility stock might decay 5-6% in a month, while a high-volatility stock could decay dozens of percentage points, or even 10% in a single day.

Look at the chart of 2x Long SK Hynix ETF to understand. Many people think that since the price of the 2x product has dropped, it's time to bottom-fish. Have you checked how much the underlying stock has actually fallen? Playing with 2x leverage is essentially paying high interest to play an unfair game. Margin interest is fixed at around 5% annually, whereas holding 2x leverage long-term incurs interest far exceeding that.

There is only one scenario where this works: one-way trends, intraday trading, quick entry and exit, and correctly identifying the trend. If you can't meet these four criteria, buying leverage equals losing money.

7⃣️Leaving no room for maneuver. If you go all-in with all your chips, you lose the ability to handle various risks. A minor fluctuation could wash you out.

The final move of the Eighteen Dragon-Subduing Palms is "Qianlong Youhui" (Arrogant Dragon Regrets). If you go all-in, there's no turning back. The reason I lost so much is that I went all-in. I didn't understand the principle of regretting arrogance, and I couldn't wait for the day the dragon flies, so I collapsed midway.

Speaking of which, I remembered that storage small-cap stock yesterday. I was tempted and almost placed the order. But I asked myself: Do I really understand it? Or am I just following the crowd wishfully? In the end, I pressed cancel. Facts proved it fell again. When observing small-caps, many are trading below book value. In fact, among the thousands of US stocks, how much capital can focus on such small caps? Even if one is truly excellent, why would capital take that risk? Small-caps attract only gamblers, and gamblers never hold long-term. Isn't this a paradox?

With so many high-quality leading companies and excellent stocks in the US market, aren't they worth buying? Why chase these illusory things and claim it's value investing? Others with capital can test the waters with 1% or even 1/1000 positions. Why should retail investors join the fray?