This time last year I started stock picking as a quasi-serious hobby. I put a few thousand bucks into ten picks to see what would happen. Picking through the carnage of this failed experiment I picked up a few good lessons.
If you've ever needed a cheap way to induce sleep pick up the most recent SEC filing of your favorite publicly traded company. You are in for hundreds of pages of sheer boredom about the guts of your company. Some people read these documents religiously and manage to make millions/billions from the information inside. I read them and lost money...
1- Don't confuse investing with guessing. I thought I was being pretty clever by reading the filings of these companies and I fooled myself into thinking I was investing when I was really just guessing. I found out later that the pros put in thousands of hours anayliszing single companies. Not to mention going to all the industry conferences and playing golf with the CEOs. On average I only made it up to 5 or 10 hours of study on my picks. Gamblers guess, investors are in for the long haul.
2- Complicated investments always sound like they have the potential to make you tons of money. I found out the hard way they can also burn up your money pile faster than a drunk gambler on the Las Vegas strip. I had read about some guys buying some "long options" and making lots money off the "leveraged" nature of call options. So I bought 500 bucks worth of long options on a coal company that went bankrupt two weeks later... Leverage cuts both ways!
3- This was the biggest, most valuable lesson: time management. I learned a lot about reading company financials, which is a valuable skill. But I learned that it's not my strong point. It's more important to work on other strong points and build more on those. Still not sure what these are for me but I know they are leadership/military/buisness/anaylsis related. Bottom line, spend time on your strengths.
4- If it sounds to good to be true... While I was writing this post I had CNBC on in the background. They had story about a schemer who ran a ponzi scheme. They were interviewing a hair dresser who invested her entire life savings with the con artist crew and lost all her money. It was terrible to see this poor woman. Never trust anyone promising those returns and never put all your money into it. If it sounds to go to be true... This stock picking experiment was like that for me. Fortunately I didn't put much money in so I was able to have fun trying out something new.
The experiment was not a total failure. Some of the picks I made actually did quite well. Unfortunatly it's easier to lose money than it is to pick winners! But the biggest revelation came to me when I logged on to my "boring" investments. Plain old run-of-mill mutual funds. Year to date gains were upwards of 20%, a great return I hardly had to work for. Will I stop picking stocks? No, it's actually fun to do so I'll still do it a little. Will I ever put a lot of money into it? No. Plain old mutual funds are a much better vehicle, espeically with a regular, monthly investment plan.
Any stock picking horror stories out there?
If you've ever needed a cheap way to induce sleep pick up the most recent SEC filing of your favorite publicly traded company. You are in for hundreds of pages of sheer boredom about the guts of your company. Some people read these documents religiously and manage to make millions/billions from the information inside. I read them and lost money...
1- Don't confuse investing with guessing. I thought I was being pretty clever by reading the filings of these companies and I fooled myself into thinking I was investing when I was really just guessing. I found out later that the pros put in thousands of hours anayliszing single companies. Not to mention going to all the industry conferences and playing golf with the CEOs. On average I only made it up to 5 or 10 hours of study on my picks. Gamblers guess, investors are in for the long haul.
2- Complicated investments always sound like they have the potential to make you tons of money. I found out the hard way they can also burn up your money pile faster than a drunk gambler on the Las Vegas strip. I had read about some guys buying some "long options" and making lots money off the "leveraged" nature of call options. So I bought 500 bucks worth of long options on a coal company that went bankrupt two weeks later... Leverage cuts both ways!
3- This was the biggest, most valuable lesson: time management. I learned a lot about reading company financials, which is a valuable skill. But I learned that it's not my strong point. It's more important to work on other strong points and build more on those. Still not sure what these are for me but I know they are leadership/military/buisness/anaylsis related. Bottom line, spend time on your strengths.
4- If it sounds to good to be true... While I was writing this post I had CNBC on in the background. They had story about a schemer who ran a ponzi scheme. They were interviewing a hair dresser who invested her entire life savings with the con artist crew and lost all her money. It was terrible to see this poor woman. Never trust anyone promising those returns and never put all your money into it. If it sounds to go to be true... This stock picking experiment was like that for me. Fortunately I didn't put much money in so I was able to have fun trying out something new.
The experiment was not a total failure. Some of the picks I made actually did quite well. Unfortunatly it's easier to lose money than it is to pick winners! But the biggest revelation came to me when I logged on to my "boring" investments. Plain old run-of-mill mutual funds. Year to date gains were upwards of 20%, a great return I hardly had to work for. Will I stop picking stocks? No, it's actually fun to do so I'll still do it a little. Will I ever put a lot of money into it? No. Plain old mutual funds are a much better vehicle, espeically with a regular, monthly investment plan.
Any stock picking horror stories out there?
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