(Updated on January 10, 2020)
A few years ago, I finally started to pay more attention to how I was investing my money. It’s never too late to start, right? I started to nibble a bit in equities. I had some painful lessons as well as some lucky investments that grew considerably. I didn’t really understand why some investments worked and others did not.
More recently, I’ve spent my free time reading and researching to learn more about investing, focused on equities. I researched more on how to evaluate companies that I’m interested in. It’s been fun! I found that I love to read annual reports and look for the underlying strategies of a company. I also learned how to look at charts and evaluate the market and individual equities.
My first stocks
In 2013, I bought my first stock. I bought TWTR at around $45, using some of the proceeds from selling my vested MSFT stock (I work for Microsoft). Three years later, I sold TWTR at a loss for $17.50. In the same time frame, MSFT price rose by 65%. That might have been enough to make me quit, but I was still interested.
Over the next year, I had some better experiences, winning with QLYS and PFPT. But I also had some losses with UA and CLDR. Overall, I was losing on my stock investments. More losses than wins. I didn’t know why I would win or lose on a stock. And I also didn’t understand why a stock would move up one day or down on another day, with absolutely no news associated with that stock.
Along the way, I also bought and sold FB and AAPL for a profit. I had even more luck with trades of AMD and AZPN. Looking back, I got lucky with great timing to buy and sell those equities (I also got lucky that it was 2019 and most any investor made money). I use the word luck, because I had no idea why some stocks worked, and the others didn’t.
What I’ve learned recently
I had two goals when I started to dig deeper. I wanted to learn how to better choose companies to invest. I also wanted to learn why stock prices go up and down without market changes or any apparent news in the press related to the company.
Out of several books, I found several very informative books:
- The Motley Fool Investment Guide – By David Gardner & Tom Gardner
- How to Make Money in Stocks – By William O’Neil
- Trade Your Way to Financial Freedom – By Van K. Tharp
- Trade Like a Stock Market Wizard – By Mark Minervini
I found the Motley Fool guide to be interesting in how David and Tom present different views on how to choose companies. The thing that struck me the most was how the typical indicators that you hear people throw out, like P/E ratios, have little to do with which stock to buy or when to buy it. I also liked that one of the first things they do is research the culture of a company before looking any deeper. That really resonates with me since I believe its Microsoft’s culture that’s made us so successful in recent years.
William O’Neil’s book was fascinating. He presents a system (CAN-SLIM) for how to identify great companies based on their fundamental strengths. Chapter 2 describes how to improve selection and timing, which explained a lot about why a stock price will change without any trend in the market or specific news about the company. I happened to read Chapters 10 & 11 about when to sell stocks just in time to save a significant amount of money in the 2020 stock market crash (I was able to go to cash quickly based on the rules defined in the book).
Van K. Tharp taught me that risk management is the key to being profitable as a trader. O’Neil’s book also talks about risk management, but Tharp describes how a system can be profitable even one picks more losing stocks than winning stocks. As long the trader controls risk (value loss and time loss) on losers and maximizes profits on winners, then a system can have very good returns. Tharp’s book also introduced me to using Average True Range to set safety stops which has been very helpful for my trading style.
Finally, Mark Minervini’s book takes a lot of what I already learned and focuses it into super-performance stocks. Super-performance stocks are those that not only are great companies, but the timing of the trade aligns to the accelerated growth phase of the stock. He teaches how to identify the companies and how to leverage a chart to pick the right time to enter and exit. One of the key concepts is the Volume Contraction Pattern.
I was also very impressed with all the others focus on historical chart analysis and learning from history on how markets and stocks behave together.
The new hobby
I have a new hobby that has changed my daily routine. I now looking at the market daily. I find it fascinating now to watch what happens and look for trends in the market and in stock prices. I also wrap up each week with a summary, evaluating how my observations played out day to day.
I spend the time to research companies and look for good opportunities to catch growth. I describe those in ideas on TradingView and here in this blog.
It’s a lot of fun and I’m looking forward to sharing more on TradingView and here on this blog.
Just follow the rules
The biggest thing I’ve learned, is that I’m a naïve trader. I’m not going to be an expert like the professionals. But I’ve also learned that if you do your research, and follow a few rules, without getting emotionally tied to one investment or another, you can make money in the stock market.