Five Years in the Market

A bit of backstory

I have always been fascinated by the stock market. I can remember getting an iPod at age 11 and being transfixed by the elusive Stocks app on it. Although it would take a few years before those numbers made any sense, it drew me in from an early age. Leading up to turning 18 I was learning everything I could about money and the stock market. This has not stopped.

I started investing in the stock market at age 18. My 23rd birthday is fast approaching so I though it would be a good idea to reflect on the last 5 years. So what have I learnt from 5 years of investing?

Everyday people can make excellent investments in the stock market

You do not have to be a genius to make money in the stock market, in fact, you have certain advantages over the supposed 'experts'. You have your own interests, niche skills and knowledge, and unique insights into the world around you that no Wall Street banker/wanker has. You are a customer, a product reviewer/recommender, and an enthusiast who understands why certain products are valuable. You're already half way there. To learn more about this I recommend reading Peter Lynch's books and listening to his speeches.

It's not about how many swings at the ball you make, it's about the ones you hit

Diversification for it's own sake is for people who fundamentally don't know what they are doing, it's investing from a standpoint of fear and uncertainty. Rather, you should be investing with confidence and conviction. You only need to understand 1 or 2 great public companies to become wealthy. Sure, if you don't want to do any thinking (which is most people), read about FIRE (I also have a recommendation in my book list on this), diversify, and make sub-optimal returns (still better than hoarding cash in the bank). Some people are happy to wait 30-40 years to see healthy returns, I am not. I would much rather do my homework and achieve greater results in far less time. Another strategy, where one decides to choose 10, 15, or 20 different stocks, is also sub-optimal and often fraught with danger. To understand even just 5 companies thoroughly enough is extremely difficult. Why do this when you will only end up knowing less about more? This is not a winning strategy. Be patient, learn as much as you can about a hand full of companies you are interested in, identify the 1 or 2 that you think will be real game changers, and strike big.

It's not about the charts

Technical analysis is astrology for stocks, an absolute joke. Investing should always be about the brass tacks, which includes understanding the management team, balance sheet, P&L statement, company vision, company corporate culture, and product. These are the factors that go into your valuation of the business. Are you purchasing the company at a discount to your current and or future valuation of said business? If so, good job, Bob. Time wasted drawing lines on graphs should be spent listening to earnings calls and reading quarterly slide decks.

Emotions are your enemy

Peter Lynch once said, "The stomach is the key organ when you're investing, not the brain." Although engaging your brain is important, these past 5 years have taught me that making decisions using that particular organ is harder than one would suppose. It can be really hard to watch your entire net worth plummet to half it's original value. Your logical brain tells you that the stock is on sale, what a bargain! Your stomach tells you otherwise. To follow your logical decision making over your stomach is a learned skill, only acquired by time in the market. The earlier you learn this, the better.

Make your own decisions

If you make your investment decisions based on what others have told you, when the stock price halves because the heard is selling, what are you likely to do? Contrastingly, if you have conviction in your stock purchases, when the market is down irrationally, it presents itself as an opportunity to you. You were already purchasing at a valuation that was at a discount to future cash flows, so who cares!!??

Conclusion

The reason I have these points is because I have made all the mistakes that these forewarn of. I used to think the odds were insurmountably stacked against me in the market, I used to believe that examining a stock chart and looking for 'levels of resistance' would give me an edge, I used to sell shares when I made a tiny profit, I used to freak out when my portfolio was in the red, I used to think diversification was a smart idea, I used to go to YouTube influencers for financial advice, not thinking for myself. I have made some seriously dumb decisions but a couple of really smart ones too. Despite all my mistakes, 5 years on, I have a healthy portfolio well in the green, and I am extremely confident that the next 5, 10, 15 years will be incredibly lucrative. As I have outlined here, you must do your own thinking to be successful. This is not financial advice, don't be a sheep.