"When a man with money meets a man with experience, the man with experience leaves with money and the man with money leaves with experience." - Anonymous
I had a Seeking Alpha follower in his early 20s ask me what advice I could impart about investing to someone just getting started investing in the stock market the other day. I have gotten this question myriad times over the years but have never put down a complete response to paper. I have always just sent a quick email with some thoughts off the top of my head.
Since I just turned 50 two weeks ago, I feel much more of a wise old sage or the occasional curmudgeon before my coffee in the morning. Given this, I decided to put some investment thoughts down in a form that might prove to be more useful. It would be the investment advice I would offer myself if I could go back in time some 30 years.
First of all, young millennial I feel sorry for your generation as I think you have drawn the short end of the stick from a near-term historical perspective. When I was 20, it was 1986 and the nation was at the end of a four-year period that produced over 5% annual GDP growth. Jobs were plentiful and there was a sense of optimism in the country. Instead of contentious presidential election between two deeply flawed candidates, we were just over a year removed from where the sitting president had come within two percent of the vote in Minnesota to winning all 50 states. The political parties actually occasionally worked together. It happened, I swear!
I was in my third year at Arizona State University pursuing a finance degree with a minor in accounting. I was paying the princely sum of $600 a semester to do so - back then we tended to graduate college without accumulating a mountain of debt or any at all. There were also no such things as "safe spaces" or "microaggressions" and I can't remember a single campus protest. Of course, we did not have 500 cable channels so we might have just been blissfully unaware of the social injustices of the world. We also lacked the social media to organize such protests even if we chose to do so. What can I say, it was a different era.
It was a time people actually talked to strangers in an elevator as there were no smartphones to look at, or cell phones of any kind for that matter. If was in a nutshell, a much simpler and opportunistic time. However, the investment advice I would impart to myself in my early 20s would be the same as I proffer now"
No one gets proficient at anything without putting in the time to learn the craft. It is no different in investing. I was lucky enough to have a father that brought home the Wall Street Journal every day and "suggested" I read certain stories about the world and the markets. Occasionally, there would be "quizzes" but more importantly it ignited an interest in me about global markets, the economy and stocks that lives on to this day.
Your generation is lucky in that it has so much research and knowledge at its fingertips via the internet than what my generation could not even imagine. Use it! At least one hour of your day should be spent reading about stocks, the economy and the markets. This will build a fundamental base of knowledge that over time will help you become a better investor.
Pick Something You Are Passionate About:
Although a decent portion of my portfolio is in income-generating instruments like lodging REITs, I rarely write about them on Seeking Alpha as I simply am not passionate about the space. I will leave those areas to the likes of Brad Thomas who has both the knowledge and an intense focus on areas like REITs.
What I have always been passionate about are small caps and biotech. First, because these are areas you can find an undervalued five-bagger on occasion and there are a lot of undervalued gems to be discovered if you are willing to do the research as these areas do not receive the analyst coverage the Apples (NASDAQ:AAPL) of the world do.
This passion is the key reason I have founded both the Biotech Forum & the Insiders Forum on Seeking Alpha. Both of which are easily beating their benchmarks as these are areas of the market I have developed expertise in after three decades of investing and after many "lessons learned". More importantly, if you pick a part of the equity market you deeply enjoy, you will naturally put in more time to mastering the nuances of that space.
I was extremely fortunate in my start of as an investor. The first stock I bought was Chrysler when Lee Iacocca was trying to save the company and rolling out the K car - look it up on Wikipedia. That stock quintupled in a couple of years. I then parlayed those winnings into a small South African gold mining stock - something like St. Vaal Reefs if I recall - that doubled in six months.
Luckily, both investments worked out amazingly. I was able to pay for my first few years in college and more importantly, it ignited a life-long passion for the stock market. However, if those first few investments had tanked or gone nowhere I might have developed a completely different view on the equity markets. This is why diversification is important, even more so in these types of high-beta bets. If you have $5,000 to invest, it is better to put $1,000 in five different stocks or even $500 in ten stocks given how low trading fees are these days than put it all in one equity. That way, one bad pick does not sink your portfolio.
Learn To Grind It Out:
"Don't got the stones? You ignorant punk. I play for money. I owe rent. Child support. I play for money, not the world series on ESPN." - Joey Knish (Rounders, 1998)
One thing I have learned in my 50 years on this planet, nothing in this life is easy. Whether it be relationships, business or the stock market; success tends to come in increments and not all at once. Therefore, be prepared to grind it out. Don't get too high from your victories or too low from your defeats - and there will be many. Learn from your mistakes and try not to repeat them.
Whenever I make an investment that turns sour, I go back and do an assessment on what I might have overlooked. Sometimes it turns out I made a reasonable risk/reward bet that simply did not turn out like I would have liked. Sometimes I missed a red flag like an accounting issue or massive insider selling that I should have not ignored. I jot that down and try to avoid the same scenario in the future.
Life and investing are a marathon, not a sprint. Your goal is to beat the overall performance of the market over time. Everything needs to be put in context. A five percent overall return might not seem like much at times, but if the market was flat that year; it is an outstanding performance.
So that is my quick investment advice garnered over three decades of investing. I hope it offers some tidbits you find useful and I wish you much investment success over the coming decades. Outside of investing, I will leave you with these thoughts from my late father. To this day, it is the some of the sagest advice I have ever heard as far as living life.
"Son, life is not complicated but most people spent a lot of their energy making it so. Life comes down to three things. Be true to your friends & family, do the best job at work you can, and try to have a little fun along the way. That's it."
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Thank You & Happy Hunting
Founder, Biotech Forum & Insiders Forum
Disclosure: I am/we are long AAPL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.