It turns out this investing thing is really hard — surprise!
I try to post a new article every evening, which is why I’m very upset that it’s been five days since my last update. In that time, so much as happened that I don’t even know where to begin.
Let’s start with Tuesday morning. Recognizing that the market was about to rapidly recover from Brexit , I made a number of new investments in companies that I thought had over-corrected:
- Netflix (NFLX) — 2 shares, limit buy at $80.67 ($173.80 total)
- Alibaba Group Holding Limited (BABA) — 3 shares at $75.85 (227.55 total), and
- Google (GOOGL) — 1 share, limit buy at $690.70 ($690.70 total)
- Apple (APPL) — 1 share at $92.94 ($92.94 total)
- Maintained my position in Twilio (TWLO) — 5 shares, bought at 26.85.
- Bought back into SiteOne Landscape Supply, Inc (SITE), which I had sold during the Brexit crisis — 5 shares at $35.02 ($175.10 total)
Finally, I sold my positions in:
- American Water Works (AWK), and
- Aqua America (WTR)
So why did I make those decisions?
I looked for bluechip companies that had greater liquidity, less downside volatility, and generally less risk. I also sold of all utilities.
I believed that certain bluechip companies were being artificially deflated by Brexit and would rebound to their pre-Brexit price after the panic subsided. Since these were intended to be short term investments (held for under three days) that rode the Brexit wave, I ignored fundamental financial measures.
I ditched my utilities positions because I expected American utilities to correct after they saw an artificial boost in volume from spooked investors using them as safe havens to whether the Brexit storm. I wanted to get out with the highest price and maybe repurchase after the correction.
I held onto TWLO because it was performing enormously well, shooting up to over $31 dollars by early Tuesday.
How I choose the Stocks
While I specifically looked for multi-billion dollar, stable corporations, I put even more emphasis on international markets. Given the emotion that was involved in the current trading cycle, I assumed that if a stock skyrocketed after-hours, the earnings would role over to the following day. This theory was proven correct.
Wednesday — Friday
So how did this play-out throughout the week? Let’s go day-by-day.
Wednesday: My highest earning day to date. By EOD, I was 46+ points in the green (2.09%). Although it’s not pictured below, after-hours trading ended up wracking up another 25+ points. While I was feeling confident, I wasn’t planning on being stupid. I sold off a number of companies that were slowing their uphill climb:
- Netflix (NFLX) — 2 shares at $89.67 ($179.34 total) ($5.54 profit)
- Google (GOOGL) — 1 share at $695.10 ($695.10 total) ($4.40 profit)
- Apple (APPL) — 1 share at $93.97 ($93.97 total) ($1.03 profit)
- SiteOne Landscape Supply, Inc (SITE), which was entering a correction— 5 shares at $33.97 ($169.85 total) ($5.25 loss). Normally I wouldn’t jump ship because of one correction, but this company had only very recently gone public. Without a history to know what to expect of it, I was nervous about maintaining my position.
My total earnings from these exits were a very underwhelming $5.72. One question I imagine you have is: with so little to gain, why did I sell? Although didn’t expect any of these companies to do poorly, the potential fallout of a stock overshooting its ideal price-point and correcting again outweighed the few additional dollars I would make if I held. I decided it was best to take my limited earnings and avoid a loss.
So all in all, my strategy worked…to a point. Each of the blue chip companies that I bet on increased (yay) but most of their gains were insubstantial.
Regardless, I don’t regret the strategy. I managed to gain during a volatile period in the stock market’s history. Alternative approaches might have earned more but would have also risked more. Moderate gain and moderate is my favored strategy for ensuring longterm earnings.
Ironically, by Wednesday night, my biggest earner (by far) was Twilio, a young startup with zero history and enormous risk. So how’d that turn out? I’ll get to that in a minute….
I didn’t just sell on Wednesday. I also picked up two other deflated companies which I planned to sell the next day:
- Target (TGT) — 2 shares at 69.76 (139.52 total)
- Panera (PNRA) — 1 share at $211.34 ($211.34 total)
I followed through on Thursday morning and sold:
- Target (TGT) — 2 shares at $70.15 ($140.30 total) ($0.78 profit)
- Panera (PNRA) — 1 share at $212.01 ($212.01 total) ($0.67 profit)
Even more moderate gains this time, but gains nonetheless.
This is where I made my crucial mistake. My earnings were at an all time, nearing 8% for the year. I decided to double-down on TWLO, since the stock continued to go up.
That was a huge mistake. Starting Thursday, the stock plummeted.
My first lesson here? My portfolio had become way, way too dependent on this small startup. The only other company I still owned was Facebook (a stock I plan to keep long-term), and that wasn’t doing well enough to offset Twilio’s losses. I decided to buy back SITE for $34/share, believing it to be a good long-term investment, but that also wasn’t enough my losses.
As you can see in the chart to the left, Twilio devastated my earnings.
Refusing to let emotion get the best of me, I held as Twilio continued to drop.
At one point, I saw a chart pattern that made me think the stock was going to break out. I bought more and it broke out (yay)…but dropped back below my buy point later in the day. I finally decided to exit Twilio on Friday. I sold 13 shares at $33.77 ($439.01 total), making relatively moderate gains.
By EOD Friday, the value of my portfolio was down to $2220.67 (from an all-time high of $2295).
The good news was that I still ended the week up .82%. The bad news was that, had I exited earlier I would have ended the week up 3% or more.
So what were my week’s lessons?
I had a great lesson in macro-market planning followed by another lesson in the threat of over-confidence and extended holding. I also learned about the limited opportunity for gain and extraordinary risk that goes along with day-trading.
I don’t plan to do this again. The rapid buy-sell pattern that I followed this week was only a strategic response to the volatile market. I wanted to lose as little and gain as much on the volatility as possible.
Going forward, I plan to continue building my spreadsheet, mapping fundamentals and chart patterns, and making investments that should pay off over the course of several weeks, months, or even years.
So where does my spreadsheet stand?
It still has a long way to go, but here’s a screenshot so you can see progress:
Pink cells show positive movement but limited momentum, indicating that the company may earn something, but not enough to be worth the exposure. Dark red cells indicate companies whose revenue or EPS has dropped below zero. Green cells are those that match my criteria. Currently, the spreadsheet only recommends companies that meet all criteria. This ensures that I only invest in the best companies with the least risk. I think that this is a little too conservative. Very few companies will meet this criteria (although Facebook is one of them, hence why I’m holding it). As I gain experience, I’ll probably loosen my standards.
Oh — one thing to note: you’ll see that I’m looking for a high P/E ratio. Typically, people look for low P/E ratios because they think that high P/E ratios indicate that the company is overvalued. A high P/E ratio means that the company’s share price is several times greater than its earnings, which makes it sound like buyers are picking up stock with little value to back up its price. In I’m reading, however, that this is a misconception. P/E ratios are best used as a measure for momentum rather than value. A high P/E means that industrial players are buying up the company’s stock in vast quantities, spiking volume and pushing the price higher (way beyond earnings). This indicates confidence in the stock, positive momentum, and a good reason to buy. A low P/E indicates that industrial buyers have little confidence in the stock and there is no momentum or negative momentum. Although you may think you’re getting a deal, the stock will probably start a price correction in the near future.
Ok that’s all I have today! For those of you who got through this read, thank you! Please post questions or comments below and I’ll respond ASAP.
I’m going to try and continue posting daily to avoid these ridiculously long posts.
Enjoy the holiday weekend!