I’m no data maven, nor am I a psychic, so my investment decisions are largely based on what the limited research I can gather tells me to do. That pretty much leads to a relatively boring portfolio, but I lost chunks of my “early 20s” portfolio thanks to buying small cap cleantech stocks inspired by my reporting days as soon as I bid adieu to the journalism field altogether.
But investing in these small cap stocks taught me a valuable lesson — just because a business seems like it has a good model and plan, that business may very well not be appreciated by the stock market (and usually for good reason.) Meanwhile, yawn-inducing stocks (like MCD and KO) are much more likely to have longer-term growth. Even more importantly, investing in index funds tends to be a lot cheaper when you don’t have a ton of cash to move around on a whim. At smaller investment sums trading fees can take a huge bite out of any potential long-term profit.
My investing career began around 2007, just before the market took a nose dive, just in time to teach me a really valuable lesson on how the markets can kill you and redeem you in a matter of years. Luckily I had so little in the market in 2007 (though it seemed like a lot at the time) that my loss was negligible. I kept my living costs low and just kept investing because it became a bit of a hobby. It was around this time I picked up my first few shares of Apple, along with those poor choices of small caps. I don’t claim to know enough to teach about stock trading, but I understand much more now than I did back then.
One thing that has helped is working in privately held, growth businesses. While all of the business fundamentals aren’t laid out to bare, such as in a public company, the moves which contribute to the success or failure of the firm are naturally transparent. In a subscription-based business the model becomes simple math: new customers, renewals and upsells. Not all businesses offer subscription models, but one can apply the learnings from the renewal-based business to one which has to continually sell products or services and grow annual income based on complete new sales vs recurring purchases. In many ways the subscription model then seems a lot more predictable, especially once a business is so embedded into another business or life.
So I’m a bit addicted to investing, but I don’t think that’s a terrible thing. It’s better than my multitude of other addictions. I wish I understood what I was doing more, but I just look at the EPS, P/E and market cap to make my decisions (plus those recommended “sell” “hold” “buy” symbols that are available in Sharebuilder’s research portal.) Today I’m oogling WYNN, GOOGL, TSLA & FB. WYNN is probably the smartest buy there — $7.56 earnings per share, 2.35% dividend yield, 27x price-to-earnings. Compare that with TSLA, which has -$.17 per share (unknown P/E?) … or Facebook at 81.8x price to earnings with just a $.75 per share. TSLA is clearly overpriced yet the question investors ask is if the stock will always be overpriced until it finally catches up to itself, or if it will be available for cheaper later.
My Sharebuilder portfolio is getting a bit out hand, with 23 funds and stocks (27 if you include the ones I have in my automatic investing cart for the next few weeks.) Is that diversified or just crazy? My new rule of thumb is for every $3k I put into Sharebuilder I need to put $3k into a Vanguard fund. I recently opened up 3 new Vanguard funds (international stock index, dividend growth and healthcare index for $3k each) so that should buy me some fun investing time…