Some of these posts that I'll be putting out are geared towards the small investor, especially those that are just starting out. If you're not a new investor and have no interest in the 'VFC Stock Market Lessons Learned', then don't read on.

A Brief History

When I started investing heavily - and by heavily I mean when I really started putting time into looking for and researching good stocks - I ventured out without much guidance, because quality sources for guidance are few and far between, and I learned a lot through experience and On-the-Job Training (OJT).

After realizing I had to do something with my money besides paying for college educations of for the children of bar owners around the globe, I looked for a way into the market. I spurned many financial advisers who offered to manage my money for me because, after seeing the absolutely ridiculous fees that they charged for 'helping me out', I figured that I would just be paying them for something that I could probably do myself. In retrospect, after seeing my gains compared to where others are right now that went with the money managers that tried to recruit me - I made the right decision.

So off I went looking for information to help get me on my way. As a small investor, I went with the online brokerage firm Sharebuilder because at the time they were the only ones that you didn't need a minimum balance. Now that I had a broker - I just needed some stocks.

My search for quality information brought me to realize that there is absolutely NO REPLACEMENT for your own DD.

Being the slick beginner that I was, I thought I would follow the analysts; when an analyst said BUY, I bought (like a dumb sucker) and when the analyst said SELL, then I sold (again like a dumb sucker).

I lost some pretty good money following the analysts before I realize that these guys didn't have me in mind when they made their recommendations, so I quit that routine very quickly. Again, there's no replacement for your own DD - and only you have your own best interests at heart, not some Wall Street analyst who works for the insiders.

I also tried the stock message boards. They were a good source for some initial insight, but I realized quickly that they're hardly a source for valuable information. There are some boards that provide good, thought provoking ideas, but once your stock becomes known, the board is cluttered with the useless banter of 'bashers', 'pumpers' and a whole lot of politicians. At that point, the board becomes about useless. People also take advantage of the anonymity of the boards and spread a good deal of misinformation in an attempt to sway readers one way or another.

I also found a plethora of pay sites that, for a healthy fee, would do your research for you. I paid for the 'Morningstar' premium membership that turned out to be a waste because the company didn't provide any info for many of the stocks I was looking at and their analysts alwasy seemed to be a little behind the curve - I noticed that after a stock started to run, they would then rate it a BUY.

I wanted to be in before the run started, so I relied on my own DD, research - and gut (which at the time was a little smaller).

Microsoft Store

That was the beginning; here's a few bits that I've picked up along the way:

- Don't be greedy. This is a no-brainer, but I made some initial investments that tripled over the first few months that i owned them - but I refused to sell. Thinking like a rookie, I thought the price would continue to rise. I manged to get out of a couple with a profit, but others I ended up selling at the break-even point or below. Regardless, I learned my lesson and I learned it quick. ALWAYS TAKE PROFITS on the way up because - and trust me on this - you'll get no joy out of selling a stock for break even when you could have posted a 300% gain on at least some of your shares.

Here's the kicker, though, and it brings me to my next point:

- Don't let your emotions dictate whether you buy or sell a stock. You could also call this 'Don't fall in or out of love' with a stock. Before you choose to invest in a stock, come up with an entry and an exit strategy that includes a price and/or time frame for both the entry and exit point. I get more into my method for doing that here.

Don't let the excitement of having your 'favorite' stock rise keep you from sticking to your plan - if something changes and you decide that you do want to stay in the stock longer than you had anticipated, at least take a little bit off the table so you can realize some profits.

With that, don't let the fact that you want to pay off your car in full keep you holding on to a stock because you 'want' it to rise enough to pay the bills. That's a bad proposition all around. The stock is going to do what the stock is going to do and you cannot 'wish' it higher because you need the money. Stay disciplined and stick to your entry/exit strategy.

As a lot of people learned over the past year - what goes soaring up can also come crashing back down. There's a whole lot of people that spent the last half of last year wondering why they didn't take some profits when the DOW was over 14,000.

Probably the smartest investing decision I made was in 2007 when I made bank on some DNDN calls. Initially I just sold enough so that I was playing on 'house money', but I then decided just to sell everything and realize all my profit. Seeing as how the stock crashed soon after, I made the right call. I didn't let emotion dictate that decision - I let the fact that my wife wanted a new wardrobe dictate it.

Either way, VFC saw very little of that money, but you get the point.

On the other hand, don't let your emotion keep you from sticking with a stock if it drops - as long as nothing has changed with what you considered to be the potential of the stock. For instance, it was tough watching CSUH drop and drop and drop again last year, but I didn't think that the drop was due to a change in the potential of the company so I fought off my instinct to sell and bought a lot more shares.

On that note, the next point is to:

- Keep on top of the news with any stock that you follow. Earlier this year SIRI did the same thing as CSUH; it dropped and dropped and dropped again on news of a possible bankruptcy, but those who were on top of the news saw that CEO Mel Karmazin was working frantically to make a deal with Liberty Media - and it looked like he'd give significant concessions to make a deal happen. Many investors bought when the stock hit five cents, VFC included, and were handsomely rewarded when a deal was realized.

I highly suggest signing up for a 'Google Alert' for every stock that you own so whenever something hits the web - it goes straight to your inbox.

Look at everything - news and investing sources, message boards, blogs, etc. Don't base an investment decision off of someone else's opinion, but you can use someone else's opinion as a good starting point.


- When you are rewarded for all of your DD and you realize big profits - SPEND IT WISELY!!!!

I have learned to temper my enthusiasm after a big hit. When I decide to sell in order to recognize a big profit, I will leave it in the cash portion of my account for five days before I touch it. The reason for that is a result of some rookie mistakes that chipped away at my winnings.

When I realized my first few big hits, I took a good chunk of the money and destroyed any investing discipline that I had accrued.

First, I put some of the money into stocks and options that I had not thoroughly researched - a mistake every time you consider it. Needless to say, I pretty much wasted good profits because in all of the excitement of a big gain (I was still just starting out), I spread my money around into stocks that, when I looked at them the next day in my portfolio, I said, "HUH?"

Note: If you ever look at your portfolio and you're not sure why you bought a stock that's in there - sell it, re-evaluate it and then make a well informed decision of whether or not you want to buy back in - key words: Well Informed.

As a result of holding my profits in cash after I sell them - to let the excitement of a good score subside so that I can make sound decisions on what to do with the money, I also learned another valuable habit - keep a potential new stock on your watch list before you buy in. Even if you end up missing out on some gains, it's better to miss out on a gain than it is to buy in too early and have the stock crash on you. In the first case, you're pissed that you missed the gain but have your money; but in the second instance you've lost your money. That's not good.

Keeping a stock on your watch list allows you to get used to any trading patterns and follow the news of the stock. Quite simply - you get used to it and don't end up saying, "Huh?" when you look in your portfolio. I don't honestly have a time frame for keeping a stock on the watch list before buying, but once I feel 'comfortable' with it, then I'll start buying in.

One you have your own investing style down, you'll know when you fell 'comfortable' with a stock.

Also - this is very important - ENJOY YOUR WINNINGS! When you have a good stock hit, you need to take a vacation. You only live once and, as I said before, there's a whole lot of people right now that wish they would have realized some profit before the market crash and took that life-long dream vacation. Your money means nothing if you don't use it to give yourself a better life - and there is nothing in this world that is more valuable than travel; and that doesn't mean driving to the Motel 6 a few towns over, that means get out and see a different country. Europe, Asia, anywhere that you haven't been.

There's nothing more satisfying than sitting on a beach in a foreign country while drinking a 'Tinto Verano', for instance, and knowing that it is a reward for all your hard work and long hours doing DD.

Enjoying your money is an absolute must.

However, you also must pay the bills.

If you can afford to do both, that's 'money'.

I hope some of this information was beneficial to someone. There's plenty out there who already have it all figured out, but there's also some new investors out there who could use a few good 'lessons learned'.

Add a Comment