Monday, January 12, 2015

Out of the Market, For Now.

On January 8th I finally hit the "sell" button on my remaining stock positions!  Sounds crazy right?  Well there is a good reason for it here.  And no, I am not a bear coming out of hibernation, warning that the markets will tank...

I wanted to take this time to share with others some things I have learned while participating in these markets over the years:

Like everyone new to investing, I had no idea where to begin.  I worked for Best Buy while attending college, and participated in a good stock matching program they offered.  I remember putting about $50 per paycheck into it, and they matched it (or a good part of it).  Well, back in 2002 shares were under $15 when I worked there and shares accumulated pretty quickly. Just by chance, when I graduated in 2005 I sold all of my shares at $54.  Not realizing it at the time, this happened to be the all-time peak of this position!  I definitely got lucky here, but I learned about 'diversification' and knew I needed to broaden my positions, in case something were to fail.

After school I moved to Texas, and used a good chunk of this money for a down payment on my first house, and still had money leftover to put back into my Scottrade account.  I looked around at various stocks but had no idea which to choose.  I remember on a website somewhere it discussed about how an offshore oil company was going to explode in growth, and how its stock was going to rise too.  Well, I figured the 'expert' who wrote the article may have been right, so I invested $100 into sea hawk drilling (HAWK).  There were 2 reasons for this, first the expert advise, and second HAWK just seemed like a cool ticker.  Needless to say, I learned several things rather quickly.  

#1 - The 'expert' advise was definitely far from the truth.  This stock collapsed rather quickly and I sold my position before the company bankrupt and got $40 of my investment back. The shares eventually went to pennies before the ticker was removed.

#2 - Low investment, resulted in getting eaten up with fees.  My $100 got me $93 in stock, since I paid Scottrade $7 for my purchase.  When I sold I also had to pay $7... So really 14% of my loss was straight up due to fees alone....

#3 - Don't invest in a company that has a 'cool' ticker symbol or a cool name, ever!

#4 - Cash adds stability, even in a portfolio with no diversification.  Aside from my single position, I had a good chunk of cash idle in the account.  Even though I lost 50% of my position, my account as a whole suffered less than a 5% loss...

Shortly after this point, I learned about dividends and the power of compounding account growth with re-investing dividends in "dividend champions."  I initiated several positions and have pooled my dividends together for future purchases of stock that I felt were under-valued at the time.

I then became heavily involved with SeekingAlpha, reading articles daily, and commenting on articles of author's that I enjoy following, such as Brad Thomas, BDCbuzz and Chuck Carnivale.  There is a wealth of information here and it really helped me develop my understanding of how markets work and how to find value in stock picks.  

I have been spending years investing between $100-$300 monthly.  This doesn't sound like there would be a lot in my account, but with the right dividend paying picks I have made, combined with the power of re-invested dividends, and rental incomes...has created a snowball big enough for me to help buy my next property, WITH CASH!  I am re-visiting a property this weekend that still has my attention, and I may be putting an offer together pretty soon.  

For the time being, its really nice not worrying about the market having a repeat of 2008.  If it does or not, I will be back into the markets later this year.

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