Rookie investor episode 2

As a fresh investor I didn't really know too many instruments or even stocks that I wanted to put my hard earned money in. What I basically knew was the the blue chip stocks that I have been using such as:

• Apple
• Adidas
• Google
• Nike
• Microsoft
• McDonalds
• Visa

I had no idea about different types of industry so I simply started looking for some help on google.

There I got a simple explanation that you can devide the stocks by size:

• large-cap,
• mid-cap,
• snall-cap.

I also learned a about growth stocks ( ones that paid no dividends or the dividends were symbolic) and value stocks ( most of them pay dividends that are growing over time).

I also got interested in making a quick buck on IPO ( Initial Public Offering) stocks but then I learned that:

• either there is a limited amount of shares to be offered and the result might be that I might get a small amount of them,
• or that the stocks are available to anyone but the previous share holders will be dumping their bag of shares on new investors and that causes a huge dump and the price of the stock just tanks.

I quickly realised that I have to learn a little more about IPOs since this can be a little too risky at the begining of my investing journey so I focused my atention on:

• Cyclical stocks,
• Non-cyclical stocks.

Finally as a fresh gambler I discovered penny stocks that are super volatile since a single penny can move the price of the stock more than 10%. I quickly discovered that I need to break up with the Casino Royal type of investor ,since I'm not 007, and move on to something that I understand.

 I found about:

• defensive stocks,
• domestic and international stocks.

When I read about all of this I got a headach and I had to take a break and let all the knowladge sink in slowly before I got the basic picture about the stock market. I put everything on paper and simplified it so that I could understand what is going on and this is how I did it. I thought for a moment why there are so many companies and why do poeple invest in so many of them and not only in the best of them. I got enlightened when I was wondering what to put on the next day. It's like with our wardrobe. We keep different clothes there. Clothes for:

• winter ( crisis ) and,
• for summer ( for the bull market).

We also have many different items ( accessories) that we use for different occasions and the same should be with our investment. I prefer to have a well balanced portfolio with:

• cyclical,
• non-cyclical stocks,
• stocks that are recesion proof,
• tech stocks that grow super fast when interest rates are low,
• stocks from various markets ( USA, China, Brazil, Germany, The Netherlands, Denmark, Japan, Hong Kong etc.).

Now you are reading this and probably the "error information overload" lamp is starting to switch on but to comfort you I can say that the stock market also offers something for couch potatos who like having the same clothes every day without washing them or following the latest fassion and best brands and I would compare that to ETFs that follow a basket of 100 to even 500 best performing companies. So why follow the trends?! Just dollar cost avrage into an ETF every week! ETFs follow a broad index that has 500 companies. This is the cheapest and quickest way to diversify your protfolio.

Now if you want to know my opinion about stocks I can tell you what I like to invest in. Ofcourse I love ETFs. I don't like bonds since:

A. most growth stocks over time outperform the yield that the bonds offer and,

B. bottom line bonds also tank when there is a crisis,

C. bonds aren't 100% secure because if you buy corporate bonds you may loose your invested capital,

D. if you buy t-bonds the risk is smaller but still you might get a lower % than the CPI inflation and then you risk being diluted.

The stocks that I adore the most are:

1. dividend growth stocks that grow fast and have a cute 1% dividend that grows over 10%+ p.a.
2. companies that are sharing the profit (that comes from cashflow, not from credit or a windfal) with their stock holders or even better,
3. those that pay a dividend and buy back cheap shares. This way I can get dividend and get promoted for holding a stock ( as an example if there are only 10 shares and I have 1 then I own 10% of the entire business but when the company buys back 2 shares then I for free get a bigger chunk of the company and become an owner of 12.5% of the company).

Over time I've changed my mindset and rather than speculating on stocks and treating them just as ticker simboles I only buy businesses I understand and want to hold possibly for ever. In other words I have swiched from speculating to becoming a business owner who wants to be a part of the business. I have learned that over time some value companies and tech companies have grown more than 10000% since there IPO till now. Unfortunetly not many investors have happy lived till they reached such returns. One best example of such an investor is Jeff Bezos and his mom that still own Amazon stocks since it IPOed and Warren Buffet who still owns Coca-cola and has never sold all the stock he owns in that company.

I also love companies that have a proven record of paying dividends. These companies can be divided into:

• Dividend champions( paying dividends that have been growing for less than 25 years but they have aspirations of becoming a dividend aristocrat ),
• Dividend aristocrats ( paying dividends that have been growing for 25+years ),
• Dividend kings ( paying dividends that have been growing for 50+years ).

I understood that investing is a long-term thing. After analizing all the available data I got the picture that investors who are holding stocks less than 1 year have in 70% of cases experienced a min. 30% loss. Those that have held stocks for 15+years have experienced a 0,5% loss but that was less than 10% of all long-term investors and the other 90% of those who were holding stocks for more than 15 years like Jeff Bezos have made over 176.182,35%. The conclision is simple:

• buy a stock that you like and you believe will exist for 15+years and you will deffenetly make a profit!,
• The more time you spend holding a stock the lower the risk!
• If you reinvest dividends then you amplify your returns for free! 
• The shorter you want to stay in the market the more speculative your behaviour becoms.
• Timing the market never works since nobody knows where the ultimate bottom is and where the top will be!
• Time spent patiently in the market works to your favour!

Now it's on to you. Ask yourself an honest question:

1. Are you an investor planning to invest every week a specific sum of money in something you undederstand and if that stock crashes will you be willing to buy on a 50% or a 70% dip?
2. Are you just a person willing to become quickly rich by FOMOing on hype stocks willing to play with leveradge with no risk managment and diversification? ( By the way just bacasue you buy Tesla, Nvidia and AMD does not mean you are diversified becasue they are all tech stocks!)

If you choose option 2 I strongly suggest not putting your money in any stock ( including crypto and options and CFDs or even bonds not even mentioning penny stocks or opening a short!).

If you have the capital but just no time to analise the simplest thing you could do is buy a boring ETF or copy traders. Here below you have a link that will take you to my profile on eTorro. There you can copytrade me or other succesful investors. Please rember that:

• past performance does not translate that the future will be exactly the same,
• this is no financial advice just my own opinion what I would do.
• If you make a profit it is yours. The same goes when you make a loss!
• Always put a stop-loss.
• Don't put all your money in just 1 instrument,
• You don't need a degree from Economy or a super high IQ. All you need is some basic knowledge and a lot of patience.