The Myth of The Infrastructure Phase: Why You Shouldn't Pick Individual Stocks

The Myth of The Infrastructure Phase: Why You Shouldn't Pick Individual Stocks

In the world of technology and finance, there are two prevailing beliefs that often captivate the attention of enthusiasts and investors alike. The first is the idea that we are currently in an infrastructure phase, where the focus should be on building the necessary tools and platforms to support future applications. The second belief is that individual stock picking is a viable strategy for beating the market and achieving financial success. However, both of these notions are rooted in myths that need to be debunked.

The concept of an infrastructure phase is a common narrative in the Web 3.0 community. The rationale behind this belief is that before we can build successful applications on blockchains, we need to have the necessary infrastructure in place. This includes better base chains, interoperability between different chains, and improved clients, wallets, and browsers. However, history has shown us that apps actually inspire infrastructure, rather than the other way around. Platforms like Facebook, Amazon/AWS, and Twilio have evolved through an iterative cycle of apps and infrastructure, where each feeds into the other. The distributed web is no exception to this rule, as value often accrues in the protocol layer rather than the applications themselves. Therefore, focusing solely on infrastructure without the existence of compelling apps is a misguided approach.

Similarly, the belief in individual stock picking as a means of outperforming the market is a fallacy. The data overwhelmingly supports the argument that most people, including professionals, are unable to consistently beat the market. The SPIVA report, which analyzes equity markets worldwide, reveals that over a five-year period, 75% of funds fail to beat their benchmark. These funds are managed by professionals who work full-time with teams of analysts, yet they still struggle to outperform. If these experts can't consistently beat the market, what chance do individual investors have? The issue with stock picking lies in the difficulty of determining causality. Unlike other domains where skill can be assessed relatively quickly, stock picking requires waiting for the outcome of decisions, which can take years. Even when a stock goes up, it's challenging to determine whether the anticipated change was the cause or if it was due to another unforeseen factor. The few skilled stock pickers that do exist are difficult to identify, making it even riskier for individuals to try their hand at stock picking.

Given these myths, it is essential to consider more reliable investment strategies and approaches. Here are three actionable pieces of advice to consider before making any investment decisions:

• 1. Diversification is key: Instead of trying to pick individual stocks, focus on building a well-diversified portfolio of income-producing assets. By spreading your investments across different asset classes and sectors, you can reduce risk and increase the likelihood of long-term success.

• 2. Invest in index funds: Instead of trying to beat the market, consider investing in low-cost index funds that track broad market indices. These funds provide exposure to a wide range of stocks, ensuring that you capture the overall market performance without the need for stock picking.

• 3. Educate yourself: Rather than relying on stock tips or recommendations, take the time to educate yourself about finance and investment principles. Understanding the basics of finance and the empirical literature will help you make informed decisions and avoid falling into the trap of stock picking.

In conclusion, the belief in an infrastructure phase and individual stock picking as viable strategies is rooted in myths that do not hold up under scrutiny. Building successful applications requires a symbiotic relationship between apps and infrastructure, rather than a linear progression. Similarly, the overwhelming evidence suggests that most people, including professionals, cannot consistently beat the market through stock picking. By diversifying your investments, focusing on index funds, and educating yourself about finance, you can set yourself up for long-term financial success without falling victim to these myths. Remember, getting rich slowly may not sound as exciting, but it's a more reliable path to financial security.