Me, Simply Wall St and a $30,000 experiment
If you’re an investor, or thinking of getting involved in the stock market, you know how bewildering it can be. P/E ratios, leverage, market capitalization, dividends, candlestick graphs, earnings, ROE, forecasts and more are all part of investing, but understanding how they fit together and affect your choices can be daunting.
Images courtesy of Wikipedia
Simply Wall Street removes much of the pain and pressure that goes into understanding stocks and shares by giving you the most relevant and useful information in a simple and easy to follow way. I’ve been using the site for a couple of months now, and I’ve decided to try an experiment:
I am going to invest $30,000 of my own money, based on information from Simply Wall Street over the next three years to see if I can meet or beat returns from the overall stock market.
I don’t know yet how this experiment is going to turn out, but I am fairly confident in my methods and the information that the site provides. In this and subsequent posts, I’ll share my methods and rules, how and why I’m picking stocks and what the results of my experiment are. I hope that you’ll find the journey interesting and insightful.
I’m a small business owner and in my day job I work as a writer, editor, business / project manager and communicator. I’m originally from Britain and have lived in the US for the last year.
I’ve been an investor for nearly 10 years, holding shares in various UK businesses and US tech giants. I sold my UK shares at a good return when I moved to the US and since then I’ve been trading over the shorter term (swing trading) with average success — just about keeping pace with the overall market.
I’ve decided that it’s time to invest for the longer term in good value, healthy, growing businesses. Since I found Simply Wall Street last year, I’ve been impressed with how the site simplifies and presents information and it seems like an ideal place to begin my new investing journey.
Of course, you might be wondering why it’s worth investing in the first place; simply put, if you can cover your other financial responsibilities and still have some money left over that you’re not going to need for a few years, there’s no better way to get a return on your income. There are some good, common-sense rules when it comes to investing though. Although your approach might be different, I find the following guidelines very useful:
Make sure that you have excess, disposable income available each month that you’re not going to need in the short to medium term
- Pay off all of your debt that has a medium to high interest rate before you invest (typically credit cards, short-term, unsecured loans etc.)
- Put money into a retirement fund each year before you invest elsewhere
- Understand the tax burdens that come with getting income from investments (in the short, medium and long term)
- Have an ‘emergency fund’ that will cover your expenses for six months in case you have an emergency or other unforeseen circumstances
- Be prepared to tie up your money in investments for at least three to five years and potentially longer
- Understand that there are risks involved with investing
- Consult a professional adviser if you don’t know what you are doing
Swing and day trading versus value and growth investing
There are many different ways to make (and lose) money on the stock market, and there are lots of self-proclaimed ‘experts’ out there that think they can beat the market, especially over the short term. The fact is that most short-term trading is speculative and is based more on luck than on insight and skill. That’s why investing for the longer term in healthy, reliable, proven businesses is almost always a better route to financial success than short term picks.
There are several types of short term trader, but two of the most common are day traders (who buy and sell stocks multiple times a day) and swing traders (who buy stocks, hold them from a few days to a few weeks and then sell them.) The main problem with short term trading is that it very largely depends on the whims of the market and external factors, and those are areas that it’s very hard for an average investor to understand or predict.
Most day traders and swing traders don’t last very long before they start to lose significant sums of money. Although markets almost always go up over the medium to long term, the day to day fluctuations of the stock market are extremely unpredictable. The other issue with day and swing trading is that it takes up lots of time that could be better spent elsewhere.
The people that make money on the markets more consistently are the ones that are willing to invest for the medium to long term (three years should really be considered the minimum). This gives individual stocks enough time to find their balance with the underlying value and worth of the business (information that Simply Wall Street excels at providing.) When you can see these ‘fundamentals’ of a business, it becomes easier to understand which stocks will appreciate more value over time.
Another thing to consider when investing for the short term versus the medium to longer term is the tax implications. In the US, gains realized within one year of purchasing a stock are taxed as a part of regular income, whereas longer term gains are taxed more favorably.
Image courtesy Wikipedia
Why I chose Simply Wall Street
There are lots of tools out there that provide information on stocks, shares and businesses, but that information is often obscured by complex terms, confusing wording and a need to have a deep understanding of finance, statistics and reporting. Sometimes, it feels like being an investor is a second career!
Many of us don’t have the time to pore over reports in detail, to understand the various arcane formulae involved in predicting future cash flow or understanding the difference between weighted moving averages and volatility. That’s where ‘Simply Wall Street’ comes in; where the site really shines is in taking complex information and breaking it down into understandable, bite-sized pieces of information, supporting by helpful graphics and easy-to-understand terms.
The fact is that things like earnings, growth, dividends, financial health and more are vital to deciding where you want to invest your money, so it is important that you have that information. Simply Wall Street removes that barrier to understanding, helping amateur investors like you and I get a deeper insight into the fundamentals of a business without needing a degree in business, finances or economics.
What to expect in future
In my next post, I’ll discuss the various investing rules that I am following, how I’m gathering information from Simply Wall Street and how I intend to use that information. After that, I’ll then take you through my stock picking process and present a more detailed analysis of some of my picks, together with letting you know about my overall portfolio and how it’s performing.
I hope you’ll join me next time.
To contact Paul check out his Google+ page.
- Paul Maplesden is an independent writer and investor not affiliated with or employed by Simply Wall Street and provided this (and subsequent) blog posts unsolicited;
- Simply Wall Street has not provided funds of any kind for this experiment;
- Any data, analysis, stock picks and methods discussed in these posts are intended purely for entertainment and informational purposes and should not be seen as guidance for your investing needs or recommendations to buy, sell or hold a particular stock or other investment.