Investing based on your own taste

There are a couple of reasons why you probably shouldn't do this:

A financial asset’s price represents the consensus of its future, not just its present.

Let's take this case for example: you think Amazon will become more dominant in the future, and you have no insider information in your possession. But, we're in 2020 - you can be pretty sure lots of others think the same, and using Amazon's past to extrapolate in to the future. Its potential is already priced in by hundreds of thousands of participants in the market.

You have no way of knowing whether the future you envision is already priced in - or not.

As a retail investor (with fees against you, and being an outsider), it’ll be almost impossible to consistently find an information edge.

Everything that’s in the mainstream financial press is most probably baked into the price. If something seems suspiciously under- or overpriced to you, you probably don’t have all the information needed, and the market is most probably right.

Things you can't forecast may matter more than what you can.

Even if your views are correct, there’s a huge amount of uncertainty in the future, that’s not connected to your original insight, which can result in a much larger impact on your investment - aka your information edge may only play a very small role in your positive or negative returns.

So you think you can forecast inflation better than anyone else. But! we’re living in a probabilistic world, and “by how much” matters. Realistically, you may be able to beat the consensus by a few percentage. Then a unforeseeable event comes with a 10-20% impact, and your edge have been wiped out immediately. Worst, if you were relying on your edge to produce extra returns, and forgot about diversification, you may be losing a ton.

Check out this interesting video to get some idea how many of us are getting even basic forecasting wrong.

It's hard to know whether you're good at it.

Even in hindsight, you’ll not be able to verify if the price risen or fell related to your original insight, or other factors. You can build up your ego in a “bull market :easily by seeing your assumptions frequently being validated, without benchmarking for total market returns or objectively evaluating the situation.

The lack of reliable feedback leads to limited amount of learning, and stagnation (combined with inflated ego).

It can get you in a dark place.

Mixing your personality (I like Crocs sandals - or I am smarter than the others in forecasting inflation) with your investment decisions (therefore I’ll buy Crocs stock - or gold) is dangerous, as you can get into a situation where your ego is conflicting with your financial well-being. We’re all humans though - good luck detaching your personality from the rest of your decisions!

You don’t want to feel diminished as an individual, just because the companies you like are not ripping through the roof. Who cares? You are you, companies come and go, and your taste and mind may change anytime.