I have been trading stocks since I was about 20 or 21 years old. I never spoke with a financial advisor, nor did I ever consult with anyone before making the decision to open an online brokerage account. However, I didn’t start trading without proper research in the months leading up to my trading. I read articles online, followed the markets, and studied all the different areas that can affect a stocks performance.
The truth is that prior to all of this research I never really knew much about stocks. I didn’t know that the Dow Jones and the S&P were indexes. I thought they themselves were stocks that I could invest in directly. So I taught myself enough about the market and the game of trading before investing a dime. I didn’t have much money and I certainly didn’t want to just guess which stocks to own and potentially gamble my money away. But I did have an interest in investing, and I wanted to learn as much as I could.
The Starting Point
I began by learning what makes stocks go up and down. I’d always heard as a kid that if a company is doing good and is making money then the stock will go up, and if it’s doing bad the stock with go down. To my surprise a company can earn enough money to fill a mine but it doesn’t necessarily mean the stock will go up. A company’s earnings definitely play a part, but only a part. And it really depends on the company itself as to how big of a part that really is for the stock performance.
This is where I learned about quarterly earnings announcements and the fact that the public perception of a company also plays a part…as does industry trends, world news, and so many other factors that may or may not have anything to directly do with a specific company. Which makes just as much sense as it doesn’t. It’s all very complex and the reality is that I don’t think any one person can fully understand this very insane system of investing, but it doesn’t keep us from trying to.
My starting point really helped me see that there were several areas of focus for me to look into. If news affects stocks, then what kind of news affects them the most or least? When it comes to these earnings announcements, how can I educated myself before hand so that I can develop my own opinion about how it will turnout? What are some technical indicators I can use to asses a stocks strength and performance?
These were all good questions and as I discovered answers to them I developed even more questions and sought more answers. I was essentially being guided along by my own curiosity, and I learned so many things…some helpful and others not so much. What I never did though, was go onto a website, read something new, and then leave it at that. Don’t ever follow the advice of one single site, article, or book. Look for other sources to either confirm the material you read or to offer other perspectives, interpretations, or to just prove another source totally wrong. I’ve never made that mistake with investing, but I have made that mistake in other ways.
Starting out I invested in “blue-chip” stocks. That’s to say I bought stock in larger, well established companies who’s stock wasn’t cursed with a lot of volatility or anything. Blue-chip investing is great for long term, but I quickly learned that with only $5,000 to invest, I didn’t want to just sit on my stocks for years and years. What I wanted was a more active role in my investments. I wanted to buy stocks that were trending in the news, had a lot of buzz, and that I could trade on earnings with well-informed estimations of the stocks performance. And so…that’s exactly what I did.
It was stupid if I’m honest. Even well educated people with years of experience would admit that trading on earnings is very risky. But I’m pleased to say that for me it was working. Sometimes I would buy a stock a few weeks before earnings or I might buy it the day before. I even made a very stupid but not totally blind trade on a penny stock with the intentions of earning at least a 10% return in one day. That trade did not make me 10% overnight…instead it made me almost 50%. At the time I made that trade I worked in an office where a financial advisor also worked, and he heavily advised me to not make that trade. I was most pleased to rub it in his face (jokingly of course) the next day. And I will note that I only invested a couple hundred dollars in that stock because of the risk involved. But I wanted to prove that I was right. All my research pointed to a positive earnings for the company and a promising return.
I didn’t always win…no one ever does. With a lot of hype back in the earlier days of the Model S for Tesla, I decided to trade on one of their earning announcements. This was after the car had been out for a little bit, and their earnings history had been very solid and made for a small spike in the stock price in the past at least. I loved the Model S and I was very intrigued with Tesla as a company. I’d never owned their stock before but I was excited to give a short spin around the corner. I invested a few thousand into the stock, literally minutes before the market closed and their announcement was to take place. I followed the announcement, as well as the after hours stock chart for the company. It wasn’t a great announcement and this was the first time I watched myself lose a decent amount of money very quickly. If I recall correctly I believe I lost 10%-15% in minutes. And when the market opened the next day I lost even more.
At this point I had to ask myself if I was a truly active trader or not. Was I going to sell and take a hefty loss, or wait it out and see if it would come back? I decided to wait because I technically hadn’t lost any money. It’s not a “realized loss” until I sell the stock and take the loss. So I waited. And that made matters even worse. It seemed like there was constantly a new Model S car fire in the news. This didn’t help me at all. I think I was somewhere around a 20%-25% loss a month or so into the investment. And I had never invested more money into a trade that was placed for the purpose of profiting from the earnings call. Somewhere in the 20%-25% loss I decided to buy more of the stock to help myself gain my money back quicker if/when the stock finally turned around. I doubled my investment in the company and fortunately the stock began to recover. When I reached an overall 10% loss I finally sold out of Tesla and moved on to other things. It took a handful of months for the whole process to play out. I had practically all my money tied up with Tesla and I freed myself from it as soon as I possibly could. I only wish that I had kept a good portion of my money there, because the stock has climbed greatly since then. Over the years it has definitely had it’s time in the spotlight and plenty of good days of strong stock gains.
To conclude, I don’t trade much these days because I’m more focused on work, but I do still have investments and I do still track the market. Most of my brokerage account money currently rests in an ETF that tracks the Dow. Not as exciting as actively trading, but it’s a wise decision to invest my money as a 27 year old and build up some retirement money for the future.