How to fail at investing

This is a writeup for my future self.

A couple days ago on an innocent morning a good friend texted me: “Dude, did you check the gold prices?” They increased by 45% in the last 18 months or so.

I started ranting about politics, because at the time there was endless money printing & “Sondervermögen” out of nowhere. Then I checked the ETF I have been investing since July 2024 and noticed it started crashing. My net gain at the time of writing is -100€.

I wasn’t worried, after all ETF is supposed to be a long term investment. I firmly believed and still believe, that it will keep increasing again. Looking at the past over the long term it did so for a long time and there have been many recessions, bubbles and what not in between. So it’s certainly better than leaving it on the bank account, which was my main motivator to even start. To be honest I really hate this. It’s really just gambling and I am not adding any real world value by doing this. However other than creating your own business I don’t see any other ways to protect what I earned from inflation.

Somehow I came across a video about wealth cycles. There he explained, that essentially one shouldn’t measure the increase in money, but it’s value relative to gold. The showed the enormous potential of the simple rule: “buy low, sell high”. I knew about this, but it seems only now after 26 years of living I really learned how people get extremely rich in their lifetime. That stuck with me.

Essentially the idea is like this: You buy gold 🪙 and wait until gold is expensive due to people trying to protect their money from inflation. You sell the gold at 4 times 💶💶💶💶 the price compared to when you baught it. Then you buy what is cheap at that moment with the gold you sold. This can even be a house 🏠 in some situations. Let’s assume you have enough gold to buy 1 house 🏠. You wait until the value of the house increases again and gold becomes cheaper. If you bought your house in 1980 and sold it in the year 2003, you could buy 6 times as much gold 🪙🪙🪙🪙🪙🪙 as you spent for it (according to some house price index and historical gold prices). Repeat the cylce and you know where I am going with this.

This is a gamble. However I learned at this moment, that to become super rich by letting time do your work, you have to gamble. Noone will time it that perfectly, but the principle remains. The key thing to understand is, that by just keeping houses or just gold you will not really get anywhere near what is possible compared to switching around.

A good first start is taking a look at the Dow Jones/Gold Ratio. It shows that the Dow Jones at that moment was not at the most expensive, but also not cheapest either. I kind of assumed, that my ETF would be somewhere similar 😅

Over the next week I kept observing my ETF and yes it kept dropping. So I thought “Well it will rise again, so I might as well buy more while it’s cheap”.
That was a mistake. I let myself get dragged into the gambling without looking at the big picture first. The sudden changes made me make hasty decisions. Now while it did decrease even further, I didn’t make large losses. However I don’t think I made a big win here. The money would have been better off on my bank ready to be invested into something else.

I wanted to see the wealth cycles for myself. Only then I would know, when is something actually expensive? This little adventure prompted me to start some tiny data analysis adventure.

First I need to get my hands on historical data. Since I couldn’t find much platforms offering it for free in a spreadsheet format and only show you graphs, I decided to use a handy-dandy tool that allows me extracting the data points from a diagram. Then using some python I could start plotting the data.

First off let’s validate the dow jones ratio.

It’s not a perfect fit, but that might be due to interpolation and precision of extracting data points from an image. Nevetherless the values and shape are close. That’s good enough.

One can see, that there how been ups and downs in the ratio. Now comes the main question I was trying to answer today! Were the ETF shares I bought at a high relative to gold (=expensive) or not?

Using data that I could extract for the ETF (it’s not very old so I will only show the historical data that I got since 2010)…

… yes it was expensive (I started investing in 2024) 😂

Now I don’t know what my next steps will be. I see only two options:

1. keep investing after it stopped dropping faster than inflation. It’s better than leaving it on the bank account. However I will not get far with that in terms of profit or escaping inflation.
2. sell and invest into something else, that is actually cheap (now to find out what that is)

This is probably where my gambling journey begins.