5 of my “Welcome to the Stock Market” moments.
A year ago I began my investing journey by creating a custodial account with E*TRADE under my dad’s name. I learned how to invest by myself by using resources through the internet, and conversations with seasoned investors. Over the last year I managed an account that contains around 6 thousand dollars worth of assets. My portfolio currently consists of 7 positions in a small variety of sectors, which have seen green peaks and red slumps. Some positions reached gains up to 100% while others dropped down to -40%. Gains and Losses aside, my first year of investing taught me some important lessons.
Here are the top 5 lessons I learned after my first year of investing.
1. If it’s too good to be true, Sell.
Honestly, this is one of the most popular rules all investors have in mind, but it’s not so easy for undisciplined investors to implement. You won’t be able to understand the power of this rule, until you truly experience it. For example, in early November, 2021, I started tracking Digital Ocean (DOCN), a medium cap Cloud Computing company. After doing a bit more digging I deemed the stock to be a buy and placed an order for 3 shares. The charts showed a continuous growth chart and had pertained to having a good future outlook in the eyes of many analysts; so I bought it at around $95. After two weeks the stock rose up 15%, thinking it was a good idea to buy more, I bought three more shares.
Another week passed, and my recently bought position was up another 15%. I checked my portfolio and realized I achieved a 30% gain on my initial investment in under 3 weeks, it was almost too good to be true. Now if you can see the charts it’s obvious what happens next, I still remember on a December morning opening up my Stocks app in the middle of Chemistry and seeing a 20% drop in my once prized stock. Currently I still hold all my positions in Digital Ocean because I believe in the long term growth in the company, even if it means having to look at a 40% decline every time I check my portfolio. Only time will tell if I make a return on this investment, but one thing for sure, if it’s too good to be true, Sell.
2. The 3 day buying rule, keep it in mind.
The three day buying rule is pretty simple: once you find a stock you want to buy has a significant drop, wait for 3 trading sessions and then reevaluate. Usually, after 3 days the volatility decreases substantially. Typically over the 3 days, 3 scenarios take place.
First, the stock reduces price significantly, if I truly believe in the company I would apply another 3 day rule and view it as a buying opportunity.
Second, the stock increases in price significantly, this requires some chart and stock analysis. Simply put, if it has solid gains for the last 3 months, place a buy and stay cautious. However if the charts show the stock is volatile, wait for the price to drive down.
Third, the stock stays around the same range and appears to be stable. If your research says the stock should go up (keeping it vague since this opinion is dependent upon the investor), the answer is clear, buy.
I first used this when I decided I wanted to buy shares of Nvidia (NVDA) back in August. After doing my research I saw the stock was at a price of around $820. Three trading sessions later the price dropped 3% to $798 and I bought my first share. Even though those $22 dollars saved may seem miniscule at the moment, it was a reminder to me that the 3 day rule does work and reinforced the power of patiently buying.
3. Companies that make you worry are poor investments.
This rule is the most important regarding an investor’s lifestyle. Trust me, not having to worry about investments will make your life way smoother. It has the same connotation as the popular saying “Happy wife, happy life”.
Unfortunately, I had to learn this rule the hard way. Solar Edge (SEDG), is a company that manufactures solar power components. I bought into the company at $275 dollars, since then the company has fluctuated in a range from $200 to $380. I would always be torn between selling or buying more, it was the first high P/E or growth stock I bought. Until I opened a new position in another company I would consistently check SEDG, and it would worry me with questions that were not necessary to answer. I’d always wonder whether to buy more or sell while cautiously checking the price.
Essentially I did not know if I believed in the stock; the volatile pricing just kept me guessing.
4. Dollar Cost Averaging is a friend.
Dollar Cost Averaging (DCA) is an investing strategy where an investor places buys for a stock over a period of time. This approach can be extremely helpful to maximize your holdings in a company smartly. In my opinion, Dollar Cost Averaging is similar to “Buying the Dip” and it’s the reason I have 30% of my portfolio in cash. I took advantage of DCA when I made my first investment in the REIT American Tower (AMT). I first bought in at a price of $232, but after a week the stock dropped down to $220. This prompted me to look further into American Tower’s fundamentals and organization as a hold.
The reinforcement from my research solidified my belief in the company, so I increased my position. At the time I didn’t know, but essentially I was dollar cost averaging. It worked then, so I haven’t stopped using this popular, tried and tested method.
5. The only way to get better at investing is to gain more experience.
The more time you spend learning, practicing, and thinking about a certain skills or topics, the better you are able to understand them.
Practice makes perfect.
*All stock figures are from Google Finance recorded after the trading session on February 2nd, 2022
