Testing The Waters
I have decided to get into investment. Most of my knowledge of investment has been fairly anecdotal, so I decided to immerse myself for the last few weeks before making any decisions about my goals or investment strategies.
My first step was to build a list of news sources to draw on. I came up with a list of subreddits as well as a few blogs and websites. I aggregated these into a single feed which I read through once or twice a day. This way, I am getting fluent in the kinds of conversations people are having around their investment strategies and goals, and staying up to the minute on trends and current events related to investment strategy.
Like any field in life; whenever I find a term or topic that I don’t understand, I read as much as I can about it until I can speak confidently about it.
This initial knowledge let me start to engage several key mentors with lots of experience in the field. After numerous rewarding conversations, I started to fill in some of my knowledge gaps and form some conclusions about the strategies and goals I will be setting out for myself;
- Investment comes down to finding ways to increase the amount of money you have, instead of losing value to inflation. Putting $100 under the mattress means you are throwing part of it away every year to inflation. Hopefully you find a better place to put it where it will grow instead of shrinking, an investment.
- Investment breaks down broadly into two categories, short-term and long-term.
- Long-term investments are about making safe bets that let you beat inflation while minimizing risks to maintain your long-term position.
- Short term investments are called speculative investments. Their goal is to take risks in search of higher, faster returns.
- Most speculative or short-term investors are not successful.
Speculative investment is about making accurate predictions of when a stock is about to go up or down, and then buying and selling at the right time to accomplish the goal you set out to.
From the start of my investment learning journey, I have tried to think of what stocks I would buy, and then follow their progress to see whether my predictions lived up to the goals I set. All my strong opinions were met with success, but the words of one mentor stuck in my head; the vast majority of speculative investors are not successful.
Above all, my learning journey has taught me that you need to build a system and stick to it, and you need to hedge your bets.
From the outset, I planned to use the app Robinhood to do my actual trading. This app offers commission free trades as well as margin trades, meaning not only do you get to buy and sell stocks without paying fees per trade as with every other previous stock trading platform, but they will loan you the money to do it. If you are successful, you will make money without investing any. If you fail, you pay up. This strikes me as a dangerous environment for an unwary investor or one without a strong plan in place for what they want to do.
I heard of another app called Acorns which makes it easy to invest for the long-term. Their business model involves investing small amounts during every transaction you do throughout your day, and they have very low rates compared to competitors.
Getting My Strategy Feet Wet; Hedging
I have decided that my strategy for hedging my bets it to invest an equal amount into each app. Every time I am tempted to make short-term bets in Robinhood, I will also invest an equal amount into Acorns to save for the long-term. This means I will be able to see their balances side by side in widgets on my homescreen and track how well my developing strategies flesh out.
More to come soon!