Breaking Down Myths of Stock Investing: Realities you can’t afford to ignore
Today we will talk about a topic most stock newsletters avoid like vampires sunlight.
Stock investing is like a rollercoaster ride, where fear and greed are your backseat drivers, constantly yelling at you to hit the brakes or push the pedal to the metal. There is a reason why this feels so stressful.
I'm Michael and I believe anyone can become confident about buying stocks.
I’m on a mission to make stock evaluation as easy as picking your favorite ice cream.
Let's start with an obvious truth
Investing in stocks is simple.
You buy low and sell high. Simple, right?
Yeah, but it’s difficult to execute.
When you accept some basics, it’s not magic – it’s actually quite simple.
The easy to accept stuff
First two points you need to accept.
1. Nobody can predict the future stock price.
When you have enough firing power, e.g. money, you can influence the price “in the short term”. Accept that the big boys are powerful, but not in the long run.
2. In the end, over a period of, let’s say greater than three years fundamentals, e.g. how well a company is doing counts more than short-term macro data, or technical chart analysis. That means, on the other side. Even when a company is healthy, the stock price can do crazy things. Accept it.
So, investing with a time horizon smaller than three years is, from my point of view, pure speculation, gambling, or trading.
Here’s what long-term investors do - they focus on the next 3+ years because that’s when they know they win.
Understanding who you are is the key to success in the stock market
Who are you?
Which investment personality type are you?
Are you the speculator, or the investor?
The way you look at the stock market is closely tight to your personality. Accept it, because there is nothing wrong with it. They are only different.
Here is why this is so important.
When you are aware of your investment personality, you can focus and choose the right stocks.
If you don’t know your investment personality, it’s like trying to choose your favorite ice cream/ stock with closed eyes and low blood sugar - you’ll be in a state of confusion followed by disappointment, and unable to make a rational decision - every time.
There is a reason why some stocks make you nervous and others don’t. If you are the speculator type, you like seeing the stock price go up and down like crazy aka volatility.
Why?
Because start-ups and growth stocks behave that way.
That’s common at this stage.
Where when you are the investor type, you are more likely focused on getting dividends and don’t watch the stock price changes on a day-to-day basis.
Understanding in which stage a stock is, is the first crucial step.
I will dive deeper into that in the next articles.
For now, this should be your takeaway
If you know yourself you can make the right choices in your life, right? You can pick the right romantic partner because you know what you need to be happy.
You can pick your favorite ice cream because you know which one you like.
So, if you can do that because you know yourself, picking your favorite stock becomes much easier.
Investing in stocks appears difficult because the stock market communicates using numbers and complicated equations and wraps them in confusing terminology and jargon. This adds a lot of voodoo woo-woo to it.
Strip away the fluff and translate it into your language, and it becomes easy to understand.
There are more and less important “metrics” aka numbers, but the takeaway is this.
Second takeaway
A huge part of our world works on assumptions and comparison. Look at every beauty contest, or ask a friend which mobile phone is better. It’s part of our human nature. Everyone has had the experience of having a false assumption. It’s also normal to be wrong in the stock market at some point.
Stock investing is not hard science because at some point you have to make educated best guesses, assumptions, and comparisons.
The only difference is - you lose money.
Ouch.
But you can limit the ouch effect by simply asking yourself this simple question before you buy a stock.
This is very important.
The question is:
When would I sell a stock?
And if this scenario happens, you sell! Period.
Sounds simple, but hard to execute - because we humans hate being wrong. Think about it for a moment.
When we are wrong, that’s usually the moment where your mind plays tricks on you and rationalizes why not selling is “good”, or why you are still “right”.
So, we’re a bit fu**** up here by nature.
My point is - accept it.
Train yourself that it is normal and part of life to admit you were wrong from time to time.
The funny thing is, as babies, we accepted failing more or less while we learned to walk. When we fell down, we cried like babies and moved on, because our desire to learn to walk and gain independence was greater.
As an intelligent human, you can apply patterns, rules, and cheat sheets to minimize the downside.
Why am I telling you all this?
I don’t promise magic with the results of my program. But I promise you insights you don’t get by reading on the internet. And these insights will enable you to make better stock choices.
Weekly update
Days until the end of the year: 272
Progress:
Signed a contract to distribute and display stock data with Tiingo.com. Had a great zoom call with Rishi (founder & CEO). He also started as a one-man show and he encouraged me to push further.
What I like, we share the same business principles. That’s a great start.
His wife and daughter have celiac disease, and my wife is a pro in gluten-free baking, so I shared one of our winning bread recipes with him.Writing code only in script form is dangerous because if you have a problem, it’s like trying to unravel spaghetti.
It’s better to organize your code in a modular fashion right from the start, so it becomes more stable and you can swap out pieces like Lego bricks.
One of the most used methods is the so-called MVC (Model, View, Controller) pattern. After much consideration, I decided against a cloud solution and focused on writing the code on my local machine in order to test faster and later transfer everything to the cloud.
I will discuss this with my tutor as well.Talking about my tutor (brilliant guy btw). Had a lesson with him about AI. Fascinating stuff!
Attended a seminar focused on stock evaluation. More about that in the next articles.
Challenges:
Too many ideas and shiny objects are popping up as I learn more about the stock market, so I have to remind myself to stay focused.
Which tasks have the most upside? Which have an unlimited downside. Why does it matter? You can make a website or program perfect, or good enough for the moment and ask for feedback after the launch.
It’s normal to change things and also normal to get down a rabbit hole where only you care.
The first is good, but the second sucks.
Plans:
Continue to transfer the prototype.
Do my AI homework
Visit my mom in the hospital. She has bone cancer, but it looks good for her.
Where is my head?
I have felt stress and impatience for the last few days.
Mainly on two fronts.
1. The code transfer sucks because it feels like starting over again. The good thing about it? I can improve what I’ve learned from the prototype.
2. I have days when I have crippling doubts about the direction of the program. Is it solving the real problem? Will it fly? The good thing about it? You’ll never know unless you try.
How I keep myself in place
Self-doubt and stress are part of life. Here’s what I tell myself on those sucking days:
What’s in my head vs. focus on the facts/ reality
A workout or sleeping a night over it always helps - Slice the big boy into smaller chunks and write the topics down ordered. Gives you a sense of control back - Trust in the process, focus on the next step(s), not the journey -
Remember: No one is forcing you to do it, you have chosen it yourself.
That’s it for today.
See you next week.
Michael
If you have any suggestions, or questions, feel free to post them in the comments below.
At the end of 2022, I gave myself the challenge to write a program that does the hard and boring work when it comes to stocks.
Read the full story here.
Disclaimer:
The information in this article is my personal opinion. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. They are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk. Investing in the stock market can always lead to a total loss of the capital invested.