The 4 Most Dangerous Words in the Stock Market

Men on the stock exchange floor
Spencer Platt / Staff / Getty Images

There are four words in the stock market which, when strung together, have resulted in billions (literally) in losses. They may have even affected you at some point, perhaps during the Dot Com bubble, or in the Bitcoin craze, or even the recent stampedes into things like 3D printing or electric cars.

Those very dangerous words are, "this time it's different." That phrase gives any experienced investor chills, and it makes me feel bad for the person who said it because I know what is about to happen to their money.

Why This Phrase is Dangerous

Why is this simple phrase so costly to investors? Well, simply put, it is because this time is not different. Companies still need to operate and grow in the same fashion as they always have, and no "new business paradigm," or "stock market environment" will ever overrule the laws of investing we've seen time and again.

The Dot Com bubble was the greatest example of the risks in believing that, "it's different this time." True, the Internet was a game-changer, but too many people expected that the movement of society to the World Wide Web made standard corporate functions irrelevant.  

After all, the purpose of a business is to make money. The Dot Com stocks forgot that truth back in 1999.  

The power bills and custodian staff still need to get paid, the snow removal service and trade shows still have a cost. They all don't care if you are a first mover or not, or if your company is scaling faster than the competition.

A business didn't require wearing a tie to work, employees could bring their pets, and the company didn't need to produce a profit. Companies measured themselves by the size of their burn rate, and competed to lose more money faster than the other guys.  

Everything was about scaling up, and usually that meant ignoring any aspect of the business which didn't fuel the aggressive drive as a first-mover or snatching market share.

The bill for lavish launch parties reached into seven-figure territory.

There is a moment when you are falling, when you may actually think you are flying. But man, does that ground ever come up suddenly!

It's Just Not Different

People use "this time is different" like a crutch or an excuse to see what they want to see. Their confirmation bias leaves them vulnerable because they are not focused on the risk side of the equation.

Spoiler alert: this time is not different. In fact, it is actually decidedly identical to every similar event in history.

The market may rise dramatically, or an individual stock may spike... then some people will explain why it can just keep on going higher. They may cite data and reasons for their stance, and their arguments and viewpoints will seem convincing.

However, such a moment typically signals a top. When someone tries to rationalize why the rules have changed, whether due to new technologies, shifts in social culture, or macro events, you may be about to witness the collapse.

Even while they are losing money, some investors will tell you, "it's different this time." However, successful investors will tell you that it is actually exactly the same as it has always been.