The most important thing I learned in my first year investing.
This was the year a lot of 30 somethings heard for the first time who Warren Buffet was, found out what the P/E ratio is and for better or worse found themselves on r/wallstreetbets. I was one of them!
The reasons behind this huge uptick in interest in the US are quite clear, at least part of them. The ingredients were all there. Lock everyone in their house, forbid them from spending their money on restaurants, drinks and vacations, give them an app with a simplified, gamified interface and commission free trading, send them some checks in the mail, and voila!… you have yourself the biggest bull market the world has ever seen.
Things were a little bit different here in Europe, we didn’t have Robinhood and we didn’t have commission free trading, especially when it comes to options. What we did have though was the “lock everyone in their house for a few months” and for me at least, that was enough. Am also pretty sure my Youtube feed had something to do with it, but I digress.
I am not what you would call a “finance guy” by any stretch of the imagination, but over my very brief investing career I found out that one thing kept rewarding me at a consistent rate in a never before seen market environment where things could go in either direction. Confidence! Confidence in your company. When I invested in companies that I knew, and I don't mean “heard about from a friend who knows a guy” but I knew like it was my life's passion to consume every little bit of news on a constant basis, that’s when I was rewarded.
When you know that your company is outsmarting and outmanoeuvring the competition at every turn, when you can predict their’s and their competition’s new products, when you can read between the lines of each of their announcements, you also know that a red ticker is nothing but an opportunity to buy.
Diversifying your portfolio is very good advice for anyone who doesn't feel that they know any sector to that degree, but I found that for me investing in companies that I just knew the fundamentals kept me second guessing myself with every deep in the price.
What am talking about here isn’t just fundamentals. If you have ever picked up an investment book, it would tell you that fundamentals are essential, how much earnings is the company making how much debt are they in and a lot of other variables. While fundamentals can be fantastic in getting you started with a company I found that they can be great indicators of how healthy a company is at this moment in time.Very important but just part of the equation. It doesn’t give you an accurate idea of what the general sentiment is about the company, if it's keeping up with competition, or if their product is something that people will continue to want to buy next year and the year after that.
I understand that for institutional money this is how it works. Shifting from sector to sector, company to company trying to catch the next wave. But for someone with limited time and limited resources I find it close to impossible to understand every sector at the required level.
Buying what you truly know, doesn’t just guarantee that you will pick a winning stock, it guarantees that you will have the confidence to keep making the right decisions while you hold it. It keeps you from putting that money in a stock you heard about on youtube, it keeps you from second guessing yourself when the stock takes a deep, it gives you the confidence to sell it when it’s reached its peak and more importantly to turn off your account and let your money work for you.
