Tag Archives: investing

Investing Is Like A Skill Based Game

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The more I think about it, the more it’s obvious that investing is like a skill-based game!

Like any skill-based game, the more you think about and practice with it, the better you become (hopefully).

I’m finding that in many ways investing is very similar to a game such as Risk, or even Chess.  Investing involves losing money as much as winning money. Much like skill-based games like Chess, you lose pieces, but sometimes you have great gains with one piece, and sometimes you hold onto that piece until the end of the game ends or at least for a long time.

A lot of people lose some money with stocks and get disillusioned with the entire process and quit.  But hardly anybody wins all the time with the stocks that they purchase.  It’s a matter of experimentation and experience.  I’ve had 6 bagger (stocks that increase their value 6 fold more than the purchase price), and I’ve had stocks that went to 0 (painful, but luckily it’s been just a few).

I’ve learned to look at more than just the financial statements, and I’ve learned to look at more than just the stock story.  I’ve seen some companies with incredible products that were brilliant go broke because the product was too expensive compared to competing products.  I’ve also seen a few stocks with rock solid financials but later it was revealed that the books were cooked, or at least questionable.  I’ve also seen a few stocks that were solid financially for many years, and that are now on the decline because of a changing business environment (think Pitney Bowes).

I’ve also learned that the management team (and especially the CEO), matters!  Look at Apple after Steve Jobs passed away for confirmation of a stock that looked like it would continually go up, and now has fallen quickly and some even believe has a questionable future.

I’ve also learned that I can’t do it like Warren Buffett.  His system is best done by him alone.  Considering he doesn’t even have a computer in is office at work really demonstrates that I won’t even invest like him.  That said, there are definitely techniques that I can learn from Warren, but in the end I would have to come up with my own system.

I have learned to diversify my stocks, and only put so much into each stock investment.  If I think I’m pretty sure a stock is a winner (much like Baidu was), then I invest more in such a stock, but those opportunities are rare for me.

I’ve just scratched the surface, there are many other facets to consider, such stock rotation during the year and other ever-changing strategies…

Bests,
Don

Debt Free, Now What?

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Back on February 2010, I became totally debt free, but now what?

I thought that there would be a period where I would break even for a while, and then start to plow about $1,000 extra each month into investments!  So now that it’s seven months later and how much extra did I save or invest?  Not a single cent!

So what’s the problem?  Why haven’t I been able to catch up?

Well it’s been a matter of bad luck with equipment breaking down and needing replaced and spending too much for our past vacation to Hilton Head Island!

But it’s also been a subtle form of LifeStyle Inflation!  Thinking back now, I realize that when wants would arise, I would just go ahead and buy it.  Yeah, I thought about it a bit, but I knew that I had the cash.  Then when our car and lawn mower broke down, I had the cash too…

So now will I begin my saving and investment regiment?  I certain hope so!

The only think that I’m worried about is the fact that my house is over 10 years old now, and it seems like things are starting to look a little run down!  I expect things to start breaking soon or later!

I decided to lower my expectations to only save and invest $500 a month.  Hopefully, I’ll be able to build back up to $1,000 though!  I plan on paying myself first this time.  That way I won’t have to feel guilty about missing my goal!

We’ll see if i can get my lifestyle expenses under control so I can accomplish my new goal!

-Don

Update 11/05/2012

Debt Free Now

Okay, the tide has definitely turned since I initially wrote about being debt-free now!  The excess in the amount of money I was saving dramatically increased after 10 months after becoming debt-free!  So I increased my 401k contribution up to 17% of my income, and still had a lot of money coming in.  So I also joined my employer’s ESPP to fund my Roth IRA.  Using my employer’s ESPP has been one of the best money moves I’ve made to-date!  Especially since I’m using my ESPP to save the money for contributing to my Roth, and since I’m using my Roth IRA as a Tax Shield, there is a nest of benefits that makes this an awesome wealth accumulation strategy.  Being debt-free now has enabled me to speed up wealth accumulation by at least doubt the rate that I was saving before I became debt-free!

Other Projects and Experiments:

I Am "Greedy When Others Are Fearful!"

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My title today is based on the following quote that Warren Buffet presented in one of his annual stockholder meetings.

Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.

In beginning of 2009, I changed my 401(k) contribution percentage to the maximum that it could be for the company that I work at (15% of my salary).  I made my decision based on the quote above, and on the confidence I got from reading about Warren Buffet making his stock purchases in the later portion of 2008.  Most people I talked to were pulling their money out of the stocks and putting them in money market funds or bonds.  This is what you don’t want to do!  After the market has tanked around 40%, I didn’t want to pull my money out and have it sit in cash.  That’s selling low and buying high, very bad!

While the smoke hasn’t totally cleared yet, everything is looking very positive at this current moment in time.  I believe that it helps having assets is different types of investments.  I think Jim Cramer is right on this one “Diversification is the only free lunch”.