500 Words — Day Eight: Investing
I remember sometime in seventh or eighth grade in social studies class, we were learning about economics and I was introduced to the concept of stocks and markets through a website and game called Stocksquest. Each person in my class got something like $10,000 in paper money and could build a portfolio with fake stocks that followed the market fairly accurately. Even though it was just an exercise, I found it very interesting and it was one of the things that planted the seeds for getting interested in economics and markets moving forward. In the background, the market was getting prepared to begin its meltdown known today as the Great Recession. 2008 was certainly an interesting time to become cognizant of both economic and political facets of society.
The next time my interest renewed in stock picking and markets was in late 2015 and into the winter of 2016. The big event I remembered following was the collapse of oil prices that winter. I was hoping for a decrease in the overall pricing of the stock market as it had risen significantly off the 2009 lows and figured we were due for another big downturn. I figured buying after a crash would be a good way to maximize the gain out of any investments I would make. I started paper trading to test the market, but ultimately forgot about as the market quickly turned around and I was busy with school. Had I actually bought stocks back then I would have make a pretty good return. Some stocks I remember being in there included Nvidia (7 -> 270), Alphabet (700 -> 2800), Amazon (600 -> 3200), and Ebay (24 -> 63).
I opened a brokerage account in early February 2020 and lost some quick money as Covid began to shut everything down moving into the spring. But I have still made pretty decent returns despite avoiding a lot of technology and pharmaceutical stocks. Cryptocurrency and Bitcoin were huge winners for me and being involved in the 2017 bubble gave me a lot of experience in the euphoria and the pain that comes with watching your portfolio skyrocket and plummet back to normalcy. Investing to many is very emotional and in the long run patience beats poor execution. So I’ll end with some things I have learned while getting up to speed in the gambler’s paradise that are the stock and crypto markets.
Making small bets is important. My first bet in Bitcoin was $100. That $100 in Bitcoin is now as of this writing is close to $2000. One cryptocurrency that I put around $150 into early on has been able to turn that bet into $8000 that I’m still riding. The key thing was I was willing to lose that money because I accepted the upside potential for the downside risk. There are many of these bets that I made in 2017 that turned $100 bets into $50. But if you find a couple of winners, you end up winning. This strategy is used by Silicon Valley in early state startups. Also, if you the get the FOMO and lose, you only lose a little and get a valuable lesson that your gut is not a good investor.
Patience is another important thing. If you understand what you are investing and can value that beyond the sticker price you can comfortably ride out crashes and avoid making fear based decisions. And if you are confident, you can buy on the way down if you think the current price is undervalued. I did that with Bitcoin post-2017. And I have done it to a smaller extent with some oil and gas stocks in 2020–21. I also rarely sell. One reason is to avoid taxes, but the other reason is that I can slowly diverse my position away from cash since most of my bets are small.
Lastly, cash is my biggest position. Some people would consider that dumb, but I see it as a flexible asset that I can easily turn around for any other asset. Having this liquidity is good because it gives me more confidence in making bigger small bets when the timing becomes opportune. An example being the Bitcoin crash in March 2020 where the price dipped below $5000 for a couple of days. Some people might consider holding cash conservative, but survival and adaptability are things I value over optimal returns. You can make risky bets, just make sure they are small and coupled with safer ones.