My Current Investment Strategy And How I’ve Grown
It takes a lot of discipline, years of being on the receiving end of profound losses to learn how to successfully ebb and flow with the markets. The unexpected happens more often than expected and bad luck becomes a term lightly tossed around, an excuse of sorts for being caught on the wrong side of a trade. Short term, I would say I can predict pretty accurately how stock prices will move, but even at that the failure rate is unseemly high. I have taken $5k and turned it into $250k in a matter of weeks, multiple times over my career, through a series of well-executed trades. Likewise, I have also felt the other side of the blade, losing similar amounts through trades gone awry, keeping me sleepless at night, enthralled by the wealth that came and went like a fleeting dream.
Ultimately, it matters not whether the stock price moves as you anticipated, but rather how you executed according to that vision. A common miscalculation is buying too early, or too late, not to mention mistiming the exit as well, which only leads to more emotionally fueled trading, causing losses to balloon. The market is a cruel teacher, and can be unforgiving in that regard, feeding off human emotions to inflict more financial pain.
12 Years ago, I started like many others in the pink sheets/penny stocks arena. After losing a couple thousand, which was everything I had back then, I quickly realized that penny stocks are worth pennies for a reason. They are utter trash – a professional vehicle for scam artists to fleece you off your money, without ever having to unveil their faces.
From there, I moved on to options. The risk to reward was far too great, and the prospect of becoming rich overnight was far too enticing. The beginning went well, as it always does. Then came the hits. Paycheck after paycheck, the market gladly swallowed and taught me many lessons in return. Weeks turned into months, and as time went by, I began to reach a point where I could break even, and I almost felt rich just seeing my paycheck not vanish like dust in the wind.
The more mistakes I made, the more skilled I became at the game, and profits quickly followed in kind. Soon, the numbers involved grew exponentially, and with bigger wins came bigger losses. They key, as it has always been, is to realize loses early and cut them out short, while letting the winners snowball into something bigger – covering 100 losses.
When times were good, I was in complete sync with the market, and I could predict moves in stock prices like clockwork. My timing would be immaculate, and I could bang out a 800% return in a matter of hours. I would feel invincible, and that the gains would only become easier – and by that right so should the amount wagered. That’s when you know you’ve peaked, and changed from investor to gambler. Like everything else, your cue to quit is when it feels you shouldn’t.
Before you realize it, your last profitable trade has been nullified, and you find yourself in a position trying to reclaim ‘what is yours’, throwing money at the markets hoping the gods move it in your favor. Your emotions take over, and what was once a systematic investment approach now becomes erratic gambling, behavior that would even be considered inappropriate etiquette at the tables in Vegas. Your losses exceed your hard earned gains built up over time, and fatigue finally releases you from the mercy of the markets, as a new reality sets in – you have less than you began with. If you are not careful, this can happen within a span of a mere 24 hours, thus fulfilling the bullshit saying ‘easy come easy go’.
The art of investing is one big psychological jig-saw puzzle shrouded in a blanket called ‘finance’. Markets move on emotions, and at its core are controlled by nothing more than supply and demand. To master the game means you’ve mastered yourself, and know precisely what you want out of an investment.
10 years ago, my goal was to make as much as I could as fast as humanely possible. Dividend stocks were for old people, and I was too young to dabble in any of that stuff. I couldn’t care less, and wanted to know where the next 200% trade was, and how I could realize those gains right now. I rode the wave up to riches, and right back down – a slave to the money when those roles should have been reversed.
Years later, I learned that true wealth isn’t created overnight. A big win today will lead to an eventual downfall later on. It is not the wrong stock chosen that triggers it, nor even the pendulum of luck swinging against your favor, but simply a flawed mentality of greed that can never build anything that will last.
Today, more than anything, I value consistency. Granted, a part of me still wants to chase stocks like AAOI, NVDA, SHOP and the likes, but if I can’t resist the urge, I haven’t really grown. Nowadays, I dedicate a small portion of what I have to feed this hunger, trading options for home run swings, but do so more infrequently and in a more controlled fashion. More and more of my thoughts are moving away from fantasizing tomorrows gains and instead towards vetting the long term viability of ideas, growing wealth in a systematic, orderly, and consistent manner. At the end of the day, we all want to build our own empires, but it is the ones that are strengthened through virtue and time that are the ones that last a lifetime.