As a beginner, I found it to be very difficult. I got all the wrong info and all in the wrong order. Let me save you some trouble, here's my story...
In yesterdays post 5 common myths about stock market investing, I'm sure I've got you interested, in today's post I'd like to show you what brought me to this point, where I now preach investing to anyone who'll listen, many of whom have followed along and are now reaping the rewards for themselves!
My first exposure to Stock Market investing came when I heard my mum complaining.
“Of course, now they crash, as soon as I buy the stock they just plummet…” What my mum was complaining about was a little known pharmaceutical company called Elan.
On the recommendation of a friend, she invested €1200 in shares of the company. Within a week, the shares had risen by 20%, so she thought why not add more? She bought more shares, taking her total exposure to €2400. Life was good. Until it wasn’t.
Elan shares got smashed from over $22 per share to $1.18, yep 118 cents. My mother’s €2400 was now worth about 120 quid. She was not pleased.
When I originally approached the concept of investing in the summer of 2013, I was cautious. I had some cash, no immediate use for it, so I wanted to invest. I was expecting and prepared for ludicrous promises from these firms talking of overnight riches and wealthy returns…
I thought I was skeptical...
Have you ever wondered what 'Invest' really means?
I hadn’t. I thought I knew, I mean you put your money into a system in the hope of greater returns? Right?
I found a Dublin based firm offering a morning seminar to teach people how they trade the market. I attended, liked what I saw and signed up for a 10 week course teaching how it all works.
After 10 weeks, I had a reasonable understanding of how the markets acted on a day to day basis, had established and started a trading account, and at the same time my funds began to grow… A little...
The account I had opened (following the advice of course tutors), was based on the ‘Spread-Betting’ system. This concept will allow you to ‘Bet’ on the direction of price movement, where, for every penny the price changes your stake is multiplied.
For example if I bet €1 on Apple to rise, and it went up by $0.25 I could close the trade and get paid 25 times my original stake (€25). However if I chose the wrong direction and Apple actually dropped $0.25, then I would have a debit of €25.
Did you notice the terminology has changed from Investing to Betting, and investment to stake..? This is because ‘Gambling’ is what I was doing, not Investing (or even trading..).
These platforms allow you to actually bet on the outcome, just like any sporting event. This has some pro’s and con’s. The only ‘pro’ is that gambling is not taxed in Ireland (unless it is your primary source of income).
The downside is that you never actually own anything. If a bet goes the wrong direction, then you need to have enough cash in your account to pay the bill. Let me emphasize, with spread betting, the only thing you own is the responsibility to fund that bill, should it come…
I learned the hard way that you need to actually own something. That way if, no, WHEN the market goes against you, you can hold on and wait it out. My mother did eventually get to sell those shares and get her €2400 back, but it took 5 years. (I didn’t get back ANY of the cash that I’d lost spread betting)
By Sept. 2015 I realized that long term investing was the way to go. I started small, with just €1K spread over 15 companies, and very soon increased my portfolio to €3k. (about 25 companies). I now own over 60 companies and I add more money to my portfolio every year. My portfolio is worth 3x what I’ve invested, and that’s in just 6 years. I’m not trying to brag, I did nothing special, just bought and held.
On a few occasions in the early days, I bought stocks and then changed my mind and sold them. Chipotle Mexican Grill (CMG) is a favorite of mine, in 2016 I bought one share for about $380. This was a very volatile stock, and immediately it started to go down in value. Then they had a salmonella outbreak at 4 stores (they sell healthy food btw)
360, 340, 320, oh heck I couldn’t take it. I sold the stock. But I slept better.
About a year later, I saw the error of my ways as the stock was now $450. So I bought it again, and within a month, they had another health scare and the stock tanked. I sold it again.
At this stage I have lost $150 on this company and have no shares. As I write this, CMG are reporting their earnings for the most recent quarter. Here’s the chart…
The moral here is that long term investing works. In the short term, markets will swing but if the company is well run, selling a good product to a thriving economy, it will probably be ok. Sure, there are exceptions, but a diverse portfolio in multiple types of industry will grow over time. The key is to leave it alone.
In the nine years that I have studied this, the market has had many ups and downs. Some of the stocks that I have bought are gone, bankrupt, out of business (6 companies). If I had never sold any, I’d own over 100 stocks. My returns from what I’ve sold (including CMG twice) is -$215.
If I had just held everything, those 30 or so stocks (that i sold) would be in profit of $2400
Long term investing is easy. If you have some cash and no plan, it should be invested. With prices rising, but savings stagnant, your money is losing value by the day. Inflation is at 5.2% avg in Europe including U.K. and almost 7% in the U.S. If your cash isn't growing by at least that much, then it is effectively shrinking.
If you want to stop the rot, join me for a free webinar and I will answer any questions you may have. This Intro to Stock Market Investing is for Beginners that are unsure if investing is for them. Let me help you off the fence, and if you want to learn more I am currently building the Beginners Investing Guide, a course that will get newbies from Clueless and Broke to Invested with Confidence!!
Categories: Investor Gym