creek138 (99.15)

A milestone reached

February 02, 2010 – Comments (1) | RELATED TICKERS: WOR , KSM , ART

Today I am celebrating. For the first time since I started investing, my active portfolio is in the black. This is active picks mind you and not my portfolio as a whole, which is still down by about $4500. Granted, mind you, I could have achieved this long ago had  I just pruned my portfolio everytime I held a loss making investment, but with the way the market has fluctuated in the recent past, I'm almost positive that a such a drastic decision would have only netted me an even bigger loss overall.

 So why am I celebrating? Well, because the average age of my active investments is over 1.5 years, which means I'm now net positive for the great recession (at least today I am) and I believe it also means that I've learned a good bit about investing, for the price of about 1 semester  at college. Through these 4 years I've studied hard, I've put a lot of diligence into my work, and I've completely changed my views on investing, most of which I attribute to MF and the CAPS community in particular and I'd like to pass on some of the lessons to you:

 1. Just say no to obscure microcaps. Most of us do not have gobs of money on the sidelines just waiting for the right investment, so stop acting like you do. If you have little money to spend, be conservative with your investments. Let me elaborate with a story. The entire reason I started to invest was because I wanted to turn 1000 into 1500 in a year so that I could completely pay for my motorcycle rather than taking a loan. So I dropped 1k into 3 microcrap investments. The ones that move a penny or so a day, but have massive floats. Well, a lot of scammers work really hard to help  ease your burden of all of this heavy cash that you're carrying around, and what's more they do it for you very quickly. The 1 penny drop turned into a 2 penny drop, then three, then four and finally, after a few months of pulling your hair out, it raises 2 cents and you rush to get out at such supersonic speeds that you don't even hear the scammers laughing all the way to the bank. I ended up having to take a loan out for twice as much as I would have if I didnt put the money into the market for a quick gain. Note, not all of my microcap trades netted a loss, but it's like pulling the lever of a slot machine the rush of the $100 wins feel great! but you're still down $500 for the ngiht.  

 Lesson: if you have little to invest, that's all the reason more to hoard it. Invest in large stable companies or ETF's that map to your favorite sector.

2. Trading between stocks to time the market will cause transaction fees to erode your portfolio. Again, if you're trading with less than a few thousand dollars per trade, those $7 (or $4 to $25 depending on who you use) fees sting! I recently found that I have spent $600 in transaction fees in 4 years. That nearly negates the gain of my top performing stock.

Lesson: Timing the market rarely works.. ust set it andforget it, if you are investing in companies that are worth investing in and the fundamentals haven't change, just stick with it. Even pro investors rarely pick stocks better than flipping a coin does.

3. Caveat to lesson 2: Don't put all of your eggs in one basket. Let's say you REALLY like a stock, great! Buy some, the key is some. Put about 40-60% (no less than $500, see Lesson 2) of the full amount you want to invest in at first. If it goes down, well no you have better buying power. If it goes up, congrats, you were right, if it still looks like a sound investment, buy more. If it doesnt look as attractive, find a company that does.

 Lesson: Not putting in your total investment does two things: 1. It helps you to continuously reevaluate your investment and learn more about the company. 2. It helps you diversify where you otherwise would not have.

4. Invest in what you know. You're already ahead of the game, you knowabout the products and the industry, great. Use that knowldge to determine if a company is really growing or just playing the numbers game. Is the product in high demand? Is it offered for a reasonable price? Are there qualified people behind the product? Don't invest in what you do not know. I bought $1500 worth of TZA right after the collapse in October 2008, only to see the market remain flat and my investment be cut in half. I had no clue what "decay" or "contango" was and I lost a lot in what I had assumed was a good idea, well once I found out and thought we were recovering I sold, only to get burned and see it reach higher highs in March.

 Lesson: Invest in what you know, learn about what you don't

5. Going back to Lesson 1, most of us do not have gobs of money to invest, which leads me to the most important investing strategy I have for you: invest in yourself!. Most of us won't get rich from investing in the market, it's merely a means to retain wealth for the future, but you will be financially better off and happier if you dedicate your career towards something you are good at and enjoy doing. Gains will be had over time and you get paid a sweet dividend about once every two weeks. The combination of a hard sought paycheck and socking some away for the future will keep you wealthy when you need it. And furthering your education is always a good thing, be it a new Degree/Diploma a professional certification or just being a more informed fool, it pays you back.

Lesson: You are your best investment.

I hope this helps you make smarter decisions so that you don't have to pay your own $4500 tuition to the SoHK, and I look forward to learning more and sharing it with you next time.

~J