Monday, July 24, 2017

Nine Things I’ve learned about Investing in the Last Nine Years

Hey everyone!

It feels like an eternity since I've posted anything on the blog - about 1.5 years to be exact! My life has changed a lot (for the better) since my last post but I will leave that story for another day :). I am back in honor of a special occasion. 
If you follow me on Twitter you probably heard that last Monday 07/17 was my 9-year anniversary as a stock investor. I've been inspired to come back on the blog to reflect on some of the lessons I've learned so far.
If you are a seasoned investor the lessons I'll be sharing may seem simple or obvious to you. However, I can only speak for myself, my own experience, and the lessons I consider valuable for me personally.
Investing, as with personal finance, is very personal.

Before I get into it, here's a little back story ...

In the summer of 2008, just a few months shy of the financial crisis that shook the word, I purchased 4 shares of my favorite company at the time.
I clearly remember my investment grew by $50 over the course of one single week and I was blown away.
It wasn't so much the dollar amount. What I was impressed by was the idea that I could put some of my savings to work by becoming a part owner of amazing companies and I could see that money grow exponentially over time without doing anything.
Needless to say I was hooked. I couldn’t believe this was available to the average person. I started to wonder why I didn’t know more people who invested.
The idea and actual practice of investing is something that continues to impress me to this day and it is something I am extremely passionate about. I've learned A LOT during the past 9 years and I am looking forward to many more amazing lessons. 
And so, without further ‘ado, here are [some] of the things I've learned so far:
#1 Action > Daydreaming: Before I began my investing journey I hesitated for years on the best way to approach investing or how to actually get started. I read countless books and articles on the subject and still didn’t really “get it”. It wasn’t until I actually went through the process of buying my first stock via an online brokerage account that things started to click for me. With investing as with many things in life, action is paramount in order to get the ball rolling.
Is also important to start slow, steady and gain confidence over time as oppose to going crazy and crashing fast.
#2 Competition and Disruption Risk – these are two “simple” things that can tell you a lot about whether or not a company’s stock can turn out to be a profitable investment over time. When it comes to competition, for example, I've found that companies that operate in saturated industries, where there are no clear leader, and where consumers are often chasing cheaper prices over anything else, are usually not great investments.

In the case of disruption, it is also very important to keep top of mind the fact that technology moves fast. You don't want to be caught invested in a business that is being crushed by innovation and disruption. Is important to remain alert at all times!
#3 By the same token - some of the best investments come from disruptive companies that have very minimal (if any) real competitors and are leaders in their industry. Emphasis on disruptive.
#4 I've realized that the decision making process that comes with buying shares of stock in a company for the long term can be very similar to the decision making process that comes with lending someone money. I tried to explain this to someone recently and here's what I said:
"To put this into perspective, you can think of a public business (or stock) just like a person. Let's say someone you know asks you to borrow $2,000 and tells you they will give you that money back “with significant interest” in a years time. However, you know for a fact that they are in deep debt, have no job or a low paying job (low income or no income), can’t make ends meet (no profits), and have no clear plans on how they will get back to profitability- would you lend that person the $2,000? Probably not. Same goes with stocks!"
#5 Companies that have multiple streams of income often make great investments. Obviously, this is not a "hard and fast" rule that applies to every company. There are always exceptions. However, If you can find a company that not only makes money in different ways but that also has a strong respectable brand and is a leader within the industry in which it operates – you’ve probably found a pretty good investment.
#6 Immersing yourself in finance and investing content will make you a more knowledgeable investor that is able to make educated investing decisions. Even if at first you have no clue what anything means, eventually things will start to “click” and you’ll start to “get it”. I listen to podcasts, read books, articles, financial newspapers, etc. I never get tired of absorbing new investing content and learning more and more each day. I've found that absorbing this type of content has made me a better investor over the years.
#7 Understand when the market is giving you a great deal and learn when it is okay to put fear aside. This quote from my virtual mentor Mr. Buffet explains it best: 

#8 There is absolutely no need to buy IPOs right away – if a company is a good one you can wait a year or two before you buy any shares and still make a whole lot of money. If a company has true and sustainable staying power time will be the judge.
#9 Struggling companies with solid fundamentals eventually find their way. Again, it will always depend but I've found that when a truly solid company* is struggling, it eventually finds its way – either through an acquisition, a strategy that completely restructures the business, or any other 'innovative' way. You just have to have the patience to see things through.
This is why diversification is so important. Just as important as having the tolerance to ride the ups and downs of the market.
*by "solid company" I am speaking about a business that actually has sales, profits, cash in the bank, justifiable debt (if any) but may be going through issues -systematic or otherwise - that may be having an impact in the stock price.
Also, remember that sometimes it is also okay to move on as long as you understand that whatever happens in the future is something no one really knows for sure.
And there you have it! 
I am curious – if you currently invest, what is the best investing lesson(s) you’ve personally learned since you started participating in the stock market?  Share below!