Lessons from the last three weeks (young investors)
By - Rob190431
When somebody who was investing for “1-2 years” starts giving unsolicited advices to “young investors” you know shit is about to go down.
Yes. Reading these comments here too is nuts, with top comment saying all the serious advice for the last year was to invest in hot new messianic fund manager Catherine Wood, but that's out the window after two bad weeks.
I think it's more the god guides my decisions quote but lol
“If a 10% drop makes you wonder whether or not you should sell that stock, you should have never bought that stock in the first” - I had read this a couple days ago on this sub and it was an eye-opener for me.
EXACTLY. You can’t throw shit at a wall and expect it to turn to gold at some point. This is especially important in doing your DD for ETF’s. I’m down on some of my major ETF’s, but I believe over the long term they will succeed handedly.
Then there’s my focus investments like AAPL - where I know long term value is heavily weighted on their cash reserves and the counties innovations they make
I laugh when people sell a stock at a 10% drop...like those type of people shouldn't even be in the markets
Honestly..After years of investing I'm at a loss for words at the moment. When GME fell down to $34-$40 a few weeks ago I thought it was over and the investing world would go back to semi-normal.
And here we are. Its back up to $225 or whatever the hell it is right now.
While all of us older investors can preach fundamentals, the market sometimes shows us up.
Another case in point is Arkk. For the past year..Anytime a new investor asked for advice in our more serious subs the overall sentiment was telling them to invest in Cathies various ventures. Now that's went by the wayside too.
The market makes fools of us all at times.
Actually all of my etf funds are in the more sector-specific ARK etfs (genomics, fintech, and next gen internet). At the present moment I hope to hold these for many years.
*I dont suggest doing this unless you are incredibly financially secure
Yeah. Decent mix there..At the moment I'm playing defense and doing ok in my Oil and Commodities portfolio.
I guess I'm just at a point now where I'm hesitant towards giving financial advice to new investors. Everyone has different investing strategies..Short term plays, long term, swing and hold..
And the way our market is performing, it's just unreal to watch.
Who knew that the perfect hedge against rising interest rates was GME stock? Got to rewrite the econ books.
Market went down, memes went up. Market went up, memes went up. Market traded sideways, memes absolutely tanked. What have we learned from this, class?
Meme stocks go up 67% of the time, I’ll take those chances ~ /s but actually kinda not /s
The thing is GME is actually a legit calculated play.
GME is an AMAZING play
Yes! I had 3 shares at $289(first go round), bought 6 more during one of the dips to bring me down to a $188 average. Then it dropped to $60-$50-$40 and I was down $1500, super disappointing being that was half of my portfolio, but I came to terms with it and held my position. Fast forward to this week, I'm up, but I got nervous during the volatility today and sold off everything. Made $400 but I have way more anxiety that I sold off too soon than I ever did about losing that $1500.
Exact same, larger scale.
Arkk has only been down for two weeks..... You're just going to swear it off that quickly?
I'm definitely not swearing anything off. I just said above what the overall sentiment/advice was for. Pan back in our r/stocks and r/investing subs the past year. Whenever new investors came in asking for advice, the majority of advice was investing in the various Ark funds along with VOO and others.
RE: ARK: isn't she a religious nut? I'm staying away from that.
Diversify your portfolio
Yes, having a tech-heavy portfolio really kinda sucks right now.
it was weird...while all my tech (etsy and poshmark) were going down my oil went up...now that they've kinda rebounded im scared about losing my tech gains lol
Also understand your portfolio. A lot of people don't even know they have a tech-heavy or other sector-heavy portfolio.
Are you telling me to do this or saying that this is a lesson highlighted in the first quarter of 2021
I am thinking of committing any new cash to my investment accounts to a diversified passive etf
Are there any particular that you are looking at? I am in IT so tech is literally all I know. Thanks in advance!
Thanks for this post. I'll use this opportunity to formulate my thoughts I took with me in the last month.
1. Be patient with "buying the dip": I shot most of my dry powder only couple of days into the correction, even though my gut told me that this was going to go on for a while - still, greed prevailed and really hit me hard.
2. Find a way to keep yourself and your mind busy during corrections: my mental being was affected way too much by the price action in the market these past few weeks - I had and still have all my money invested ( 0% cash + margin ) and the price action literally dictated my mood that day
3. Still, I believe the saying "Be greedy when others are fearful" holds a lot of truth to it. This especially was true in the 2nd half of last week, up to Friday. I bought stocks on margin, cause I have no cash left. Why do I have no cash left? Cause I burned it all in the first week of the correction, I was greedy. " Don't be greedy when everyone else is greedy."
4. If stocks affect your sleep, you've done something wrong: I would wake up in the mornings last week, thinking about what I should or could have done, how much money I'd have, and so on.
5. Pull profits: I was up 60% on my portfolio in February and sold only a single stock. I got cocky and bought into short term positions that I had no clue about, only to sell as soon as I saw it dropping, which also cost me a lot of gains. By now I am down -30% on my portfolio, so a difference of almost 100k, which is completely mind-boggling to me.
That's my two cents, hope this will help someone who finds himself in a similar position. Good luck on all your trades and lots of success.
Yes - up until this morning. Now I'm back to -10%
I just checked the VOO - it's gone from 339 to 357, tat is roughly a 5% increase. 40% seems a lot for the sp500. Where do you get 40% from?
And yes, it's painful, especially since I'm not only investing with my money, but also relative's money and margin.
I still see a bigger profit in trading single stocks, the only "ETFs" I would consider are ARK, because the invest heavy in growth.
> the only "ETFs" I would consider are ARK, because the invest heavy in growth.
I'm not sure what you mean by this-- there are plenty of growth ETFs. There are small, mid, large-cap, or total etfs that are all purely centered around growth. Just google "growth etfs" haha
Hold up, it's not just your money but family members' money that you are literally setting on fire?!
Dude, stop trading IMMEDIATELY and park all your money in VTI or VOO asap. As of this morning, VOO is up 38% over the last year.
I definitely agree with a majority of your points, with the exception of trading on margin and pulling profits. Everyone’s finances and life situations are different, but trading on margin because you have no cash left can be a dangerous game. I imagine you’re mentioning to pull profits to fund your day to day life or upcoming expenses? That again can be risky if your cash is fully invested in the market, and you have no emergency fund and/or money saved for about 6 months worth of expenses. Also, short term capital gains tax can be a killer too, opposed to holding onto companies that you believe in long term.
Everyone’s investment strategy is different, but I just wanted to throw my $0.02 in for all the new comers that are reading this.
This is sound advice but not the sort you consider when you're working with <8k, playing on the dream. I'm looking forward to the 19th so I can never day trade again and just focus on long plays.
With regard to number 6. What’s the general consensus on how much profit to pull? Like, if one makes 50% profit, should they sell that? Or sell when they’ve doubled their money? What?
I pull a staggered amount. If something is up 10% I sell 20%. For every 5% gain I sell another 10%. I typically have a price target I think something will get to and once it's at or near that price I close it out.
Example I was in [email protected], I hit my 10,15,20 and 25% marks and cashed out at +25%.
Today it dropped a bit back down but not below 20. This particular stock has bounced 18-22 the last few months, it will likely you under 20 and I'll buy right back in and start the process over.
My highest expectation was 24ish in 6 month look. I still expect it go up around 30 in 2-3 years. That said, it's locked on my watch list. Matter of fact, I have a buy order to grab 25 shares if it hits 19.50.
Thanks for sharing some insight. There are quite a few lessons to take away that you highlighted though I do want to add that trying to time the exact bottom of a downtrend can be quite a hard task. Buying on the way down rather than just one shotting your load can also be viable strategy, generally for very safe investments that basically go up over time (eg. broad market ETFs).
Definitely can relate. Using margin for the first "dip" didn't improve my sleep either. I like to think of my margin as an "emergency emergency fund", and now I'll probably have to keep it negative for awhile.
I hope that you can recover from your losses and that you didn't take on margin that you cannot repay.
Waiting before pulling the trigger will be a big take-away for both of us I hope. Let's make the best out of the lessons we've learned and look forward .
I only tapped into my margin towards the end of last week, when I felt that we had hit bottom on Friday.
I'll be fine. I was never in any financial risk, I'm holding my portfolio until retirement and can afford to lose the money even though it's unpleasant, and I 100% trust the markets in the long run. I still have my actual emergency fund intact of course, and barring a total market meltdown I'm nowhere near margin call. To be honest, some leverage can be a good friend with current rates if you make regular deposits to your account. Set your personal margin limit based on how long will it take you to repay it with your deposits (kinda like a mortgage but with a much shorter duration) and how severe of a crash it can survive.
I get stressed when I lose my confidence, and I realized I have a lot less confidence in positions that I entered because the dip looked like an opportunity than in what I usually buy to hold long term. Stress isn't rational, but I suppose that managing my portfolio to reduce stress at the expense of some returns is a good idea. I lost more when a 150% gain position turned into "just" 90% gain, or when an index fund corrected, than in any new position I opened. But when I look at my portfolio, I notice mostly something that dropped by 15-20% two weeks after buying it and I feel like an idiot ("My god! what have I done???"). I kinda miss the days when I reviewed my portfolio once a quarter. I think the lesson for me is that WFH + FOMO = enemy of my retirement.
Here's what I'm doing now, maybe you'll find it helpful. If you want to exit positions, instead of writing off the loss, just transfer it into your long term holds that took the same beating. You ride it down with some random stock, and ride it back up with something you can trust. Your sleep will improve a lot. :-)
I have 5-10% of cash in my bank account at all times. Even in a crash. Especially in a crash.
Buying the dip is all fun and games until you realise you can't time the bottom and you better be having some money in case it has reason to dip more.
Having to cut back on my lifestyle choices because of a market crash / correction would cause incredible stress which would also cause emotional decisions
Those 10% aren't going to make me rich if I was to invest them but they're keeping me sane when they stay in my bank account
Well yeah I guess it depends on your definition of an emergency fund
But surely you have plans on things you want to buy in the next 5 years for which you'd take a size of your portfolio f.e. a house - for which a market crash could throw you back quite a couple of years. It gives me reassurance to know i could at least pay a down payment without having to touch my stocks
Nope, the very point of keeping some of the money in bonds (~age%, or age-10) is for times when the market crashes. Obviously if you are keeping a balanced portfolio you’ll rebalance your money after a crash, because at that time your bonds will be more than stocks
Agreed, timing of market part is what I disagree most with. I would spend every penny I have to spare if S&P crashes.
I find number 1 really really difficult. It gets overridden by Fomo! 😡
The fear of me not having that sweet cash reserve to buy cheap stock just because the entire market crashed is stronger.
Now I love it when I see -15 or -20% or worse on most of my portfolio because I know that it's free money. I usually buy in at each 15-25% dip and love the anticipation for it to happen.
Holy fuck this is a dangerous way of thinking
Emotion is the enemy of successful investing man
Is most of your experience gained in 2020? I think this will get easier as we learn more that the market and speculative growth stocks dont typically double or triple each year!
I started Autumn last year and literally everything I was buying was taking off. I could do no wrong! It’s become apparent in the last 3 weeks that I now need to put a lot more thought into it if my investment is going to continue to grow. I’m getting to enjoy doing the DD now, and the rewards it brings
Yes same! I feel that I need to check my implicit and explicit expectations
Lol just look at the daily range of pricing for stocks since essentially mid 2019. Few years ago 4% in a day was a big deal for a stock, now that's like low.
Really zero commission trading has completely changed the game.
On the deep red days, buy amzn, aapl and msft, that is the best strategy.
Lesson I learned is every time I buy something on dip it dips ALOT fucking further. So from now on when i decide to buy shares of stock I like Ill wait for 2 extra weeks and if not dips ill wait 2 more and 2 more and 2 more.
Which means Ill never buy another share. And Ill save my fucking money. Not financial advisor. Just guy who bought Amazon at [email protected] and BB at [email protected]
I came up for a rule myself. Never buy an IPO over 24 hours out. Let it sizzle for a few days to get an idea of where it’ll actually go
As a young investor I think you're going to regret holding up to 20% cash. I understand the desire to hold some cash but time in the market is what matters. Having a balanced portfolio is more important than dry powder. You can easily rebalance when necessary, for example selling off VTI for QQQ over the last week.
I’m surprised this is so far down. Lump sum investing has literally been shown to beat out even DCA not to mention trying to time dips. Markets aren’t always this volatile. In most years, waiting for a dip means losing out on 10% just to get a 5% dip.
What's that crazy finding about a handful of days having a meaningful impact on your returns? Imagine if someone just panic sold their tech and growth yesterday. They'd miss today's massive spike.
If you have 10+ years before you even consider retiring then push your chips in and stay the course. Obviously don't go all in preflop with 7🔸2♣️ but time in the market will always beat timing.
Everyone and their mom is up 200-300% YoY right now. If you're not taking at least some cash profits right now, you're insane.
The problem with not holding cash is that you're not going to optimize your long term returns. Not just because you might have a 2000 crash-like event (and there will be) where the entire market loses 75% of its value and holding some cash would mitigate that, but when markets are good, you've got to always liquidate some position when another great opportunity comes along.
And if you can't afford to keep a 1/5 to 1/3 of your portfolio in cash & equivalents, then you probably shouldn't be playing with the market. Some baths you can't avoid, but any that you can avoid, you should.
You aren't factoring in opportunity cost. Sure, we will experience crashes in the future but no one can predict when, how deep or how long it goes on for. By the time the next crash comes your trough could be deep yet still higher than it would be had you held cash. Every study shows time in the market beats timing it or holding cash.
That said it's not as simple as creating a perfect portfolio because a lot of it depends on your risk tolerance and what stage of life you're in. I'm not against holding cash, but in this case for a 20-something year old it's a suboptimal decision firmly rooted in data.
Well, to begin with I don't recommend that the average 20 year old do anything other than stick money in an index fund. If all you've got is $40,000 to your name, losing it all is a very large setback.
The opportunity cost of losing the future value of that principal far outweighs the opportunity cost of not keeping it in cash now... and it's never the same cash anyway. It's a revolving door. Over time I'm moving cash into and out of that bucket from the turnover in my portfolio.
Beyond that, I'm only ever purchasing securities when they're substantially undervalued. The larger aggregate return this produces over time offsets any lost opportunities.
How much you have to your name is irrelevant. What matters is investing money you will not touch for decades (in this case). Don't invest what you think you need in two years for a home down payment. Keep your buckets separated and have an emergency fund, budget etc. Bottom line, when that money goes in its a one way ticket. As you get older obviously that can change.
Your point about opportunity cost and future value implies you have the ability to time the market. Obviously you don't, which means there's a real opportunity cost to not keeping your money in the market. I'm not here to tell you that's not a valid strategy if you so desire, but again, you're making judgments about whether a stock or the market is too high/low and timing your entry/exit points.
The reason I say "if you only have $40k"... Re: if you haven't already got the home downpayment, and here's my point about the $40k... build up your savings first so that you have enough to live on before you invest. Sure you can start putting away $5000 in an index fund, but if you want to invest in individual securities, bonds, etc., you won't be able to diversify properly with less than $100k.
it's not just about "don't touch for decades" it's also about not losing principal. Not losing principal has a much larger impact on CAGR than a higher IRR, and it relieves you of having to incur more risk. Less risk, more growth.
It's not about timing. I'm not looking for market bottom... I don't need to, because underpriced securities exist in every kind of market condition. Forget the market. I don't even worry about what the market is doing day to day, week to week, month to month. I don't watch CNBC. I don't listen to hype. I only buy underpriced securities, whenever I find them... that isn't market timing *at all.*
I'm simply saying if you encounter an underpriced security and you always are turning over cash, you're always going to have this revolving door of buying and selling securities rather than having to wait to dispose of A at a favorable price, or being forced to sell A at an unfavorable price. You can forego timing, buy B *whenever* it's underpriced with the cash in hand, and sell A only when it's turning a profit... and both A and B and the cash are not being touched.
And I am only talking about money I don't need for decades.
Separated buckets? I have seven brokerage accounts.
Emergency fund? I have six months of salary set aside, on top of the above, and on top of my two checking accounts.
No credit card debt, and I live quite a bit below my means.
I built up to this by following the strategy I've described to you, and I've beaten the S&P CAGR 14 out of the past 15 years.
Holding cash is trying to time the market, which cannot be done.
It's the exact opposite. I don't look for opportunities based on time. I look for them in any market condition based on intrinsic value. You don't know when that opportunity is going to come along. Always having some amount of cash available means I don't ever have to think about what the market is going to do and when.
It's not this static pile of money that never does anything. It's a revolving door. I make more money holding that cash than I would having to potentially liquidate any position at a lower return or a loss, to take on another opportunity.
Having some cash in reserve isn't the best strategy, unless you can time a crash with crazy accuracy.
What would be best is to have said cash reserves in a non-volatile etf like global stock market or spy or maybe a heavy blue chip stock like Microsoft. Even with the recent tech crash, the spy dropped just 5%. You could take some money of that and put it into the bargains because of the crash
Good advice. A couple things I would add:
A well-diversified portfolio might include asset class diversification, e.g. preferred stock, common stock, corporate bonds, treasuries, as well as sector diversification, e.g. consumer goods/staples, raw materials, distribution, financial services, technology, etc.
Most people without an accounting/finance background and less than $250,000 in liquid assets are probably better off sitting on no-load index funds for years since it's unlikely that they'll beat these indexes over the long term.
For people with $250,000 or more in liquid assets, a variety of investing strategies open up. My brother, who is worth many more times than me, doesn't have time for the market. All of his accounts are fully managed portfolios. He pays a fee equal to 1-2% of AUM.
I can't overstate the importance of a long-term investment strategy whether you are two or fifty years from retirement. If your retirement is 50 years away, every dollar lost today is $160 future dollars lost. If your retirement is two years away, you would have to generate a 41.2% annual return two years in a row to claw it back. But this puts you in a terrible position because it can go in the other direction, reducing your retirement by as much as 71%.
Honestly, 20% of cash is a huge opportunity cost lost unless you can time the market and successfully build up 20% cash position right before market crashes.
I would love to see like half of the 20% somewhere that grows but has less downside volatility so you can still liquidate during sell-offs but still generate returns.
This is assuming you are a younger investor <40 years old.
I started investing this year.... I’m somewhat familiar with finance so i’m not as lost as I could be- but holy fuck does the market normally do this???? hahah like its kinda humorous to me- some of these stocks are skyrocketing meanwhile some stocks are considerably undervalued; Anyways, i’ve been investing in all types of industries and markets- is that the way to go instead of putting all my cash in one specific industry, company, etc.?
Best advice, watch this video from Terry Smith, head of the £20BN Fundsmith fund.
You are the enemy.
Risk management is another one to consider together with the use of leverage.
"Slow and steady wins the race."
#2, no harm in checking up on your stock picks, but maybe instead of just looking at price it’s more DD or finding another potential company. This way you are scratching that itch and gaining a) confidence in your choice of pick or b) gaining more insight on potential picks.
Just be careful cuz it’s easy to get hit by #4 when doing research.
Good general personal rules to have.
To 3) - I have to stop myself from irrationally buying when I see big red numbers. Some juicy sales in my favourite companies is starting to whittle down my emergency fund...
You should stop yourself from irrationally buying when you obviously can’t afford it. When your well researched positions go on sale they should trigger buys.
On hand cash is king, investing comes second
I've simply reduced cash reserves from 20 to 15% total nw. Still around 18-24 months cash reserves so nowhere near a 6-9 month lower limit I'd be comfortable. I held more in cash emergency fund through these uncertain times, as you say cash is king but it is not essential in this case.
N.1 I've used this recent month. It has allowed me to rebalance and hedge my tech heavy portfolio, and I'm actually in positive in this bloodbath of a month.