Today the world is more complex than ever, and it's important that we collectively discuss the many issues facing us to create a better tomorrow for all and for generations yet to come. My posts focus on a variety of topics including where I’m investing my money, the political environment, and implications of emerging technologies. Disclaimer: This is not to be taken as legal investment advice. Thoughts and opinions expressed in my writing are my own and do not represent any of my employers.
I began college without a real plan of what I wanted to make of myself. I knew I had some desire to be involved with business so I began to pursue a degree in marketing. After one semester of classes and a fair amount of thought, I decided to make a change to finance. I found finance to be far more intellectually stimulating than marketing. The stock market had always interested me so I figured I'd try to understand the complexity of it all. I found myself reading at every opportunity I had, whether it was industry specific, economic principles, history of markets, or testimonies from industry titans such as Warren Buffet, Ray Dalio, David Tepper, Jamie Dimon, etc.
Through all my reading I was able to have a working knowledge of everything that was going on, so I decided to start trading stocks on a paper(fake virtual money) account. The risk was low and I was just looking to see how I would perform. After about 6 months I felt I had a much better understanding of the financial environment so I decided it was time to put my own money on the line. I opened up a Robinhood account because this was the only brokerage I could afford since they require no minimum deposit and charge $0 commissions on trades. I was eager to start making some real money, but sadly I got caught up in short-term profits rather than having a long-term strategy to sustainably grow my wealth. The toxic short-term mindset had me relying on earnings reports and other short-term milestones that impact the price of a stock. After numerous losses, I found myself down over $150 which doesn't sound like a lot of money, but at the time it was about a third of my personal portfolio. I knew I had to make some drastic changes to my approach and overall strategy, and most importantly I knew I had to learn more.
I couldn't stand opening up my account to see the losses I had taken. I decided to seek guidance from people who have done continuously well over the years better understand their various strategies. The main key that kept popping up left and right was patience. Patience is something I think the majority of young people lack. We were born into a world where most everything was available at our fingertips. From all sorts of forms of entertainment, whether it be movies, video games, music, to even just searching the web, we seem to live in an age of convenience built upon the principle of instant gratification. One of Buffet's quotes about patience really stuck with me, "Someone is sitting in the shade today because someone planted a tree a long time ago." This quote can be applied to all different areas of life, but it fits perfectly with investing. When my generation thinks of investing they think of things like the Wolf of Wall Street and other get rich quick like concepts, but that is a very skewed perception. Another point Buffet makes very clear is that he only invests in things he truly understands. While this sounds very simple, it's by no means simple when your primary goal is to profit.
After feeling a bit wiser and optimistic, I decided to restructure my entire portfolio. I was honestly buying companies that were said to have a great amount of potential upside, but I didn't understand those companies and I was too narrow-minded to ride out the short-term price fluctuations. I instead moved more of my money into diversified ETFs (Exchange traded funds) that indexed a particular industry, sector, or overall general market. I had about 40% of my portfolio in individual stocks, and 60% in ETFs. I really made sure I had a thorough understanding of where I was putting my money to avoid the familiar pain of losing money. The next step was patience. Instead of checking my account several times a day, I instead decided to check it once a day after 4:00 PM EST (when markets are closed). This allowed me to be much more relaxed throughout the day so I was able to get more work or reading done.
This strategy felt much more sustainable for a long-term outlook, and it has proven to work over time. I ended my first year of trading with about a small loss of about 3%, which wasn't terrible considering how low I was at a certain point. This past year (2017) worked out much better a 29.66% overall gain, opposed to the S&P 500 performance of only 19.42. It was a fantastic year for stocks, but a consensus of stability can be worrisome. When markets continue to climb higher investors get increasingly greedy for many reasons, most of which are psychological. For this reason, I'm slowly moving out of all my individual stocks and into ETFs that I believe have long-term potential. Most of my articles are going to be about industry-specific ETFs rather than individual stock picking and a general market outlook. In the coming weeks, I'll be posting about industries I have a long-term focus on, and some emerging technologies that I believe have a sense of optimism on, along with how to get exposure to them.