Should I Invest?

Investing can be compared to a relationship. It is not a casual, short term relationship but a serious long term commitment.  It needs to be well thought out and one needs to have conviction and staying power in order to make it work.   

Right now stocks have been on a very long, positive run. This is when most people get interested in investing and this is often the worst time to get started investing. My portfolio is not saying to take risk off yet, but the next change will be to take risk off, it is also not adding risk. Of the four asset classes I have chosen to allocate between, Large Cap Equity is the second safest or most conservative asset class. Only Investment Grade Bonds are more conservative.

Investing is difficult because of time and how the recent past affects our current mood.

A real world example to help you understand the difficulty:

On 11/16/2015 you look at stock A (graph below). It has been going up and looks and feels like a good purchase. You buy10 shares of this stock at $668.45 per share. total cost $6,684.50.

3 months later the stock has dropped to $511.66. Your 10 shares are worth $5,116.60 and you have lost $1,567.90 or almost 1/4th of your money.  Do you sell or hold on? If you have to sell to fix a water heater or car or for some other reason you will have lost a lot of money.

Scroll down to see the ending of this story...










If you held on you have continued to see some some volatility but on November 15, 2018 your shares are $1586.08. Your investment is worth $15,860.80. You have gained $9,176.30 or 137% in three years. Thats more than double your money and this is after a pretty good drop over the past couple months.

The above charts are a real company (Amazon). If you bought without conviction or without the ability to hold for a long period you would have lost a lot of money. If you had conviction and the ability to hold on, you are very happy. Not all stocks go up like this one has, there are times where selling is warranted and necessary. The key is to have enough conviction in your ideas so you can get through the tough spots - kind of like a relationship.

10 tips to help you succeed in investing:

1) Think of your investments as a collection, you don't trade in your collections for money except in the most dire circumstances.

2) Plan to invest for 5 years or more if you are going into risky products (like stocks). If you don't have 5 years then stick with cash and short term bonds.

3) Be careful of the products that allow you to invest a couple of dollars at a time - if all you have is a couple of dollars in savings it should be in cash or short term bonds, you may need the money. (investing and savings are two very different things).

4) Stick with companies and products you know and understand. (your staying power and level of interest will be higher)

5) Only buy on a day the stock is down. (lessens the likelihood of buying based on greed)

6) Only sell on a day the stock is up. (lessens the likelihood of selling based on fear)

7) Set a review date that is two to three years out and don't worry about performance until that date.

8) Avoid the news, they will tell you what has happened not what is going to happen. Investing based on what has happened is the surest way to lose money that I know of.

9) If you are concerned about the price level, invest slowly over time. Maybe one third of the total desired investment every three months - this is called dollar cost averaging and can be very powerful.

10) Use common sense - look at the motivations of those involved in your investment, why are they willing to pay you for your participation? Does the expected compensation seem reasonable? If not, stay away.

DISCLAIMER:

Past performance is not a guarantee of future performance.  This strategy is presented for informational purposes only and is not a solicitation to buy or sell any securities. The writer of this blog owns many (long positions only), if not all, of the securities discussed in this blog. October is one of the peculiarly dangerous months to speculate in stocks in.  The others are July, January, September, April, November, May , March, June, December, August and February. ~ Mark Twain