289 Days: Stock Trading Experiment
In September of 2016 I decided to drop some money into Robinhood and see how I fared making trades based on my own insights and whatever information I could casually gather online. Since then, my portfolio value has appreciated 37% while the Dow has only gained 8% and the NASDAQ 16%. I’ve learned a lot and I’ll share some of it here.
Let me say at the outset that my experience with Robinhood has been incredible. Forget that it has no trading insights to offer. You get completely free trades. If you feel like signing up, use this link. You and I both get a free share of a random stock.
I really started this experiment in July of 2016. Niantic launched Pokémon Go and Nintendo saw it’s stock prices rise dramatically in a very short period of time. Being a guy in tech who played Pokémon as a kid and has a business degree; I was pretty aware of Nintendo, iOS apps, and how the stock market functions. I had an insight: Most people trading Nintendo after Pokémon Go launched don’t understand who Niantic is, who owns the Pokémon intellectual property, or how fad-like iOS games can be while earning very little cash return. So, I played a little game. I imaginarily shorted $10,000 of Nintendo stock. In August I elected to close that imaginary trade and netted an imaginary return of around 31% over a 16 day period.
I’ll be the first person to admit I didn’t have the courage to pony up the real cash for a $10,000 short. That could have gone very badly for me. If you aren’t familiar with shorts, take a quick read here. If Nintendo’s stock had continued to rise, I could have owed thousands of dollars instead of earning thousands. All of this aside, my experience here got me thinking.
How would I fare trading stock on my own with real money? Would I be just as courageous? Even more importantly, would I be just as correct with my insights?
In September, 2016 I transferred $2000 USD into Robinhood and purchased 9 different stocks. I listed a reason for each purchase and estimated how long it would take for my reason to show value — estimating when I should sell that stock. I didn’t want to simply toss money in with a guess and a prayer. I wanted to attempt capitalizing on my own predictions. My initial stock purchases were: Activision (ATVI), Walmart (WMT), Advanced Micro Devices (AMD), Disney (DIS), General Electric (GE), Ford (F), United Parcel Service (UPS), FedEx (FDX), and Tesla (TSLA).
Of those initial trades, 4 proved to be bad. I exited Walmart at -9%, GE at -0.5%, UPS at + 1.5%, and Ford at +0.15%. However, the remaining 5 trades and every trade since then have proved to be good trades. My highest successful return is AMD at +88% and my lowest successful return is Disney at +10%. My other successful trades include Microsoft, Boeing, and Lockheed Martin.
Sitting here in the middle of positive results and reflecting, here’s what I’ve learned.
- Trading with real money makes you be honest with yourself. This isn’t a game, it’s a prediction that you need to make based on facts and things you believe you know that most other people don’t know.
- It’s really hard to exit a trade. Once you buy a stock, it’s easy to hope instead of make realistic choices. When you’re down, you can imagine the price will magically just come back up so you can sell at 0%. When you’re up, you imagine you may hit the lottery and the price will keep soaring.
- Guaranteeing a return is impossible and hedging your choices is really difficult. Your information is imperfect and while it’s easy to see the future as either A or B happening, and buy a stock with those assumptions, there are infinite other possibilities that can cause you to lose or gain value.
- You will never be the first person to have a specific insight. This is probably the learning that hit me hardest. I should never day-trade because someone else always knows what’s happening faster and in more detail than I do. I need to make practical decisions that include very little time-sensitive decision-making.
- The stock market is not a zero sum game, but most often when you win somebody else is losing. This makes some people feel dirty, but it’s the nature of stock trading. When something I own gains value, what is losing value? If I sell a stock before it plummets, I’m handing it to someone while I have some amount of certainty that it will lose them money. You have to be ok with this going in whether you gain or lose.
- The stock market includes perceived value and real value and sometimes it’s hard to tell the difference. The intrinsic value of a stock rarely equals the price. Instead, multitudes of factors create an extrinsic value that can be almost impossible to decipher. This is what makes setting targets and goals so important. Otherwise you’re just guessing.
I’ve had the luxury of trading during an upward trend in US stock values. There’s a whole world of stock trading that I still have yet to experience and I’m certain I’m making tons of mistakes and am exposed to way more risk than I realize. But here’s the thing. Probably the biggest lesson I’ve had reinforced is two-fold:
Never invest money you can’t afford to lose; your best investment is always going to be you.
No matter where you put your money, understand yourself, whether you are up to the challenge, and whether you should actively manage your money in a different way that’s better suited to you specifically. I plan to keep investing this way for the foreseeable future. It takes work to constantly attempt having insights that are tradable, but it’s taught me a lot about value, economic forces, and the implications and ramifications of decisions that consumers make every day. Every one of us has to choose what to do with the money we have. For me, until I spend it, I’d rather be investing than sitting on cash. I’d also rather be making choices than wishing on a star.