Its been 2 years since I first started trading stocks. I still remember the day I deposited $5000 into my brokerage account and bought 150 shares of Research In Motion (NASDAQ:BBRY) for $28.129 each. I learned a lot more about the stock market since then, and decided to (re)start my blog and share my journey into the wonderful world of finance.
I first bought into RIM when I heard that RIM share price cratered from its 2008 peak of $150 to $30 per share. Being a home town RIM fan (I study Engineering at University of Waterloo), I decided that this was the steal of the century. Due to my thirst for price action, I day traded RIM stocks. Call it beginners luck if you will, I made over $1000 in little over a month. In fact, I still remember selling all my shares at an intra day high of $32.79 per share, and watching from the sidelines as the price plummet down to $20 per share in the subsequent weeks. Having just out smarted thousands of wall street professionals (or so I thought), I was feeling on top of the world.
Everybody knows how the story goes from there. I went on to lose over $2500 when RIM fell from $16 to $7 a share. I shed another $1500 when I bet on Chinese micro-cap frauds such as (NASDAQ:GURE) and (NASDAQ:GPRC), as well as fell victim to pump and dump schemes on (NASDAQ:COOL).
It was the darkest hour when I saw my portfolio cut in more than half from $6000 to $2000. However, like any good story, something miraculous always happens, otherwise no one would be around to tell it right? For me, that miracle was (NASDAQ:ARNA). I purchased 300 shares of Arena Pharmaceuticals at $2.23 per share, and rode the weight loss pill train all the way to $12 and eventually sold 200 shares at $9.25 a share. If somebody does the math, that's about $2100 in realized and unrealized gains. This speculative move single handedly saved my portfolio, and gave me the motivation to not walk away from the market.
Having a much reduced risk appetite, my investment decisions no longer involves tips from people like "generous jack" on Seekingalpha's comment boards. Riding on the great waves of QE infinity, and making some great calls on (NASDAQ:FSLR) (NYSE:NOK) and (NASDAQ:VVUS), my portfolio is back where I was 2 years ago, just a touch shy of $6000.
Looking back at my performance, had I just invested in either the NASDAQ 100 or the S&P 500, I would've had an extra $300 - 500 to play with.
But I think I'll just write off that extra $500 (had I invested in NASDAQ 100) as tuition fees for a valuable lesson. And what did I get out of this $500 lesson?
1. Never put all the money in one basket. For people just getting into the stock market, its tempting to invest everything into one stock. However, the right decisions need to be made at the right time in order to make money in the stock market, and having a diverse portfolio lessens the impact of one bad decision.
2. Read the most recent annual report before investing in a company. Sure it is easier to read a 1 page article on how great a company is compared to a 300 page annual report. But if the music stops and you don't want to be the one caught without a chair, that 300 page annual report is a good starting point for proper research.
3. Great companies does not equal great stock, and vice versa. Using the great words from Warren Buffett's 2007 shareholder letter, "price is what you pay, value is what you get".
Okay, this seems to be a good place to end the story, although casualties were incurred along the way, things eventually turned out okay. However, this is not the happy-ever-after just yet. I still have much to learn and I will (attempt to) provide monthly updates on my portfolio. I do this so I can look back one day and laugh at how foolish I was, as well as sharing the journey with people who are interested. So stay tuned for the sequel(s)!