Is there an unknown law that affects the stock market?

somerandomusername

I've noticed that whenever I buy into a stock, after doing all the research and stuff. It always drops the day I buy in, and continues to drop for the first few days after I buy in. Long term my positions do go up as I seem to have a natural ability to pick generally good strong companies.

I've never tracked this statistic before but I noticed that this year I invested into 9 companies and of the 9 I invested in, every single one of them dropped a bit the day I bought in, and the following days going forward.

In fact I can't recall ever buying into a stock and being in the green on the first day…

And I didn't buy these 9 stocks on the same day, which would just mean a bad day. I bought them separately space out over periods of several weeks.

So the way I see it is there's essentially a 50% chance of a stock going up or down on any given day, let's just say for arguments sake it is 50%. So to buy 9 companies and have them all go down on the day I buy them basically means I flipped a coin 9 times and it landed on heads (the market drops) 9 times in a row.

The odds of that are 0.195% or 1 in 512.

How is this possible? I'm starting to think maybe there's some kind of universal law like the first law of thermodynamics or the third law of gravity etc. So basically me buying a stock fundamentally causes it to go down in value initially? Like my buying somehow has a direct effect on the stock.

I see comments on social media sometimes joking where people ask "when will the stock go up" and people reply with "when you sell". Or they will ask "when will the stop drop" and they reply, "when you buy in".

I use to think it was just a joke but now I'm starting to become convinced there might be some truth to this, like in a universal law kind of way?

Exodi

I suspect this is likely bid/ask spread.

darrensurrey

I'm taking what you've written at face value so my thought is - do you like to see a bit of movement before you buy? It could be that the short-term momentum has run out just after you buy so you see it back off a bit. In other words, it might be a bit of a psychological thing for you.

DiamondLil

It's called Sod's Law round 'ere.

Baldytyke88

I have noticed that shares that I have bought in the past, which are way down in price, they tend to go up when the FTSE goes down.

Exodi

somerandomusername

Long term my positions do go up as I seem to have a natural ability to pick generally good strong companies.

Oh dear, I suspect you're in for a rude awakening in the future…

It's very easy to be a prophet in a bull market. We saw it during Covid, many were gambling their stimulus money on the stock market, and as everything was going up to the point that picking stocks blindfolded would see a positive return, so to was the self validation that the new wave of investors were all the next Warren Buffet - financial gurus on social media galore. I see it on the investing forums again with the AI companies with people investing in SNDK, MU, etc.

Given the very low sample size (9), it could be down to luck, but more than likely bid-ask spread - especially if you're buying into low volume companies.

From how your thread reads, it sounds like you are new to investing, I wish you the best of luck however just make sure you invest money you can afford to lose, particularly doing it the way you are.

somerandomusername

I use to think it was just a joke but now I'm starting to become convinced there might be some truth to this, like in a universal law kind of way?

Confirmation bias and humans strong aversion to loss.

Nonetheless, it doesn't matter as presumably you are not day-trading.

I wouldn't even think to check what my stocks are worth the following day as as I'm invested for the long term.

somerandomusername

https://forums.moneysavingexpert.com/discussion/comment/82166036#Comment_82166036

Oh right yeah, this is probably the reason.

https://forums.moneysavingexpert.com/discussion/comment/82166039#Comment_82166039

Yes I like to buy when the stock has dipped a bit. But it dips more when I buy in :D

GeoffTF

It is widely quoted that the investments that private investors sell do better than those that they buy. This paper is frequently quoted:

https://faculty.haas.berkeley.edu/odean/papers/returns/individual_investor_performance_final.pdf

Similar claims are made for funds. It is possible that whatever you are doing to select stocks is worse than picking them at random. Nonetheless, I doubt that buying the stocks that private investors sell and selling the stocks that they buy (or doing something equivalent with derivatives) is a market beating strategy. If it were, anonymised broker trading records would be very valuable indeed.

DecoChicken

The Ancient Law of Sod, I’m afraid.

And it’s worth remembering that it’s the long term prospects of an investment that are important, not the short term ups and downs.

Zippy29

"If you don't feel comfortable owning something for 10 years then don't own it for 10 minutes" - Warren Buffett