My Journey in Investing: The Investing Process Part 1
Upon finalizing my account on Etrade, I was finally ready to begin investing my $5,00 fund. Leading up to this, I was enamored by the idea of making big gains in the stock market by putting my money into rapidly growing tech monoliths. For these reasons, a certain “archetype” of the company appealed most to me, regardless of whether it was in an ideal position to grow. Even though I didn’t create a formal checklist of attributes that a company should have, I knew it should be a large market cap company, be a well-known brand that I frequently interact with, and be making rapid developments. Companies like Tesla, Amazon, and Microsoft come to mind. In hindsight, I now realize that this vision formulated itself into a set of blinders leading me to take a tunnel minded approach to my initial purchases. Instead of focusing on the “aesthetics of a brand, I should have focused on more concrete factors. This, later on, lead to a shift in my purchasing process. As will be described in my next entry- I want to avoid such rash and unfounded judgments in the future, leading me to develop rough algorithms to quantify the worthiness of a certain stock. Anyways, back to the initial buying process.
My first priority was to explore the E*Trade system. As I began interacting with the interface, I was overwhelmed by the number of resources available. Aside from the basic purchasing page, the system had various research sections in which you can see the recommendations of financial advisors or experienced brokers. Out of my haste, I decided a quick read through would be sufficient and began looking at market patterns. While this may seem like a good approach, mind you, that it was still clouded by a biased lens with regards to the specific companies I wanted to buy. Later, I reread the past five or six Wall Street Journal Daily updates to fill myself up on the news (what the white house and congress were up to) as well as various business-related developments. This was back in August/September, and if you remember, the market, as a reflection of trade based conflict with China was incredibly turbulent. One day there would be a rapid rise in stock prices as relationships seemed to be mended between the two governments, and then soon after an incendiary tweet or retaliatory tariff would lead to crashing stock prices for most tech-based companies (which If you remember were the exact companies I had my eyes on). Paralleling this, I read up on other Business related headlines. Around the time Netflix started depreciating slightly with the growth of its competition (putting companies like Disney and NBC on my radar). Boeing also was facing issues with its, what we now know to be doomed, 737 Max Aircraft.
In researching how one should begin investing, virtually every source mentioned the importance of developing a diversified and thus low-risk portfolio. What this means is that in order to develop a stable portfolio, I should split my money up by putting some of in bonds, some in cash, and then another reasonable percentage in stocks. This makes it so that I have guaranteed returns from the bonds, and thus any possible losses from stocks are minimized. The idea is that my “wealth” shouldn't be dependent on whether or not NASDAQ had a good day. Funnily enough, I ended up completely ignoring this as bonds seemed incredibly boring to me. After all, $5,000 in ten-years bonds is not nearly as flashy as five crispy Amazon shares. Thus, in the end, E*Trade categorized my all-stocks portfolio as “aggressive” due to its high risk, high reward nature.