Stock Trading — It’s all about patience!
By: Angad Singh
Tags: Trading, Personal Finance, Day Trading, Stocks, Stock Market

Stock Trading — It’s all about patience!

A harrowing personal story

This memory is fresh to write about. It’s almost too fresh… I can still feel the burn of missed out profits simply because of impatience. As uncomfortable as it is, it would be too stupid to not write about it and force myself to analyse my mistakes and hopefully learn from it. Perhaps you can also learn from my mistake and not mess up the same way I did not too long ago.

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” — Benjamin Graham

Above is a quote from legendary economist and investor Benjamin Graham from “Intelligent Investor”, a book that is considered the stock trading bible by Warren Buffett. Whenever you let your emotions take over your decision making or in the quote’s language; let your emotions corrode your decision making framework, you are bound to make mistakes. Jumping in on a stock even though you know it’s price seems too high but you are FOMO’ing in, selling a stock because it’s going down, selling a stock even when you know the company has a bright future ahead etc. are all examples of corrosions that can occur when you let your emotions take over your decision making. I recently made one of these aforementioned mistakes.

Story Time

Corona Virus hit the West mid-late February. Unsurprisingly, on the 20th of February, the stock market started crashing. The chart below shows what I mean:

S&P 500 over the past 6 months

A crash is an opportunity because it means cheaper stocks. I frantically started researching different companies. There were conflicting opinions about what was going to happen to the world economy and what was going to happen to major indexes like the S&P 500. YouTube was filled with content titled; “The next best opportunity!”, “This stock is going to double during the lockdown”, “Top 3 recession-proof stocks”, “Stocks that will bounce back” and more. After I sieved through all this junk and made my mind that it was in fact a good time to invest provided I could make some good picks, it was already late March. I now decided to look at companies that I wanted to invest in. This was my criteria for picking a company’s stock:

It should have enough cash to survive an extended lockdown of a few months It should be a company in a growing industry, or be disruptive in some sense (i.e. have potential for growth in the future when corona is dealt with) I should understand their core products/services It should have sound leadership (CEO’s etc) that will not make any rash decisions (like the ones I was about to make)

By using this filter to pick stocks, I narrowed down to these few companies:

Facebook

Tesla

New Work (A German company, it’s subsidiaries include Internations and XING)

Building My Portfolio

Once I had my list of companies ready it was time to buy stocks for these companies. My first purchase was of New Work. I bought it online from the XET exchange on 13/03/2020 at a price of €201. I bought 4 stocks at this price so the total was €804.

For Facebook, I wanted to build a bigger position on this stock so I decided to spread my risk and buy stocks over time instead of all at once like I did with New Work. This is how my “purchase sessions” looked like on Börse Frankfurt:

10 stocks at €145.80 on 27/03/2020 10 stocks at €150 on 01/04/2020 5 stocks at €160 on 15/04/2020 15 stocks at €170 on 24/04/2020

Now for anyone following Tesla stock, this one will get your mouth watering. I bought 1 stock of Tesla from NASDAQ at $508 and 4 at $515, all on 27/03/2020.

While I was riding the stock market during these times I started talking to a friend who works at Microsoft. He told me how much more work he has to do now because of more businesses relying on their Cloud services during these quarantined times (for anyone reading in the future — this was during the infamous COVID-19 era). As he mentioned this, something clicked, of course — their Azure business must be booming right now! The company I currently I work for also completely relies on the Microsoft Stack; Microsoft Office, Outlook, Skype for Business, MS Teams and more. Their position in B2B tech was uncontested. During these COVID times, tech businesses were doing the best. And there is no Tech giant more diversified as Microsoft. They have Xbox, Microsoft Windows, GitHub, LinkedIn, Bing, Skype, MS SQL Servers and all the business software I mentioned earlier. As someone who is an avid consumer of technology products, suddenly Microsoft stock seemed like a no-brainer to me. So I decided to also build a decent position on Microsoft. I bought 20 shares of Microsoft from NASDAQ at $167 on 21/04/2020 and 18 more from NASDAQ again at $172 on 22/04/2020.

So this is how my portfolio looked with it’s worth in USD/$:

Getting Nervous

With being stuck at home I was spending a lot of my free time reading about stocks, the economy and Coronavirus. Usually reading is a good habit. But not when you do it compulsively like I do sometimes and let it affect my emotional state. This combined with all the news and YouTube videos about predicting that a bigger crash was coming really started to get to me. Even the best investor ever Warren Buffett had cut his losses and sold huge positions in several American Airlines. His firm Berkshire Hathaway suffered a $50 billion loss in the first quarter of 2020. If even the great Warren Buffett was selling his stocks and all these experts were predicting a massive crash, who was I to say that they’re all wrong? I’m making profits right now but was I about to lose it all? OK, Facebook and Microsoft are huge, they will rebound eventually but what about New Work and this new kid on the block Tesla? At least that’s how Tesla seemed at the time when it was still quite volatile.

I tried to resist these emotions but I couldn’t suppress them completely. And with each passing day and more “news” about the impending crash I got more anxious. So I decided to sell my positions. The first one to go was Tesla. At the time it was quite volatile and seemed more like a burden. My friends and family were also advising against Tesla and it was causing me to lose sleep so I sold it quite early on 31/03/2020. I sold Facebook and New Work on 20/05/2020, and Microsoft on 15/06/2020. This is how my sales looked like in $:

It’s obvious to anyone that I sold Tesla waaaaaaaayyyyyy too soon. But if you followed any of the other companies too, I sold them all too early too. Here’s how my portfolio (at the time of this writing) would have looked like if I had held on to all of those companies:

This is a huge % difference in my portfolio. Not to mention these stocks are probably going to still go up but now it would be riskier to invest with some of these stocks either at All-time-high or close to it.

Conclusion

Warren Buffett reads an average of 6 hours a day and he does not let it affect his emotional state. I read an average of 2 hours a day and I clearly let it affect my emotional state and trading manners. I would have been better off not watching so many YouTube videos about stocks and reading about the economy. If I could have just taken a chill pill, relaxed and forgotten about my investments, I would have done really well. Most investors lack this rare skill; being comfortable with doing nothing.

Instead I acted almost like a day trader. I made a profit of $2,225. I am certainly not unhappy with this. This represents 13% of my investment in these companies and it’s great to have these returns in just a couple of months and I still have many investments that I am still holding because I have learnt from this experience. But if I had managed to unplug my brain from all the noise, taken a few deep breaths or just ignored the constant news alerts, my profits could have been up to $6,856 or a whopping 40% of my investment! Could you imagine how much bragging rights I would get because of that? 😄. Maybe it is for the best. If I had made so much of a profit I would never shut up about it and quite possibly act like a douche in front of friends. If you would like to explore more mistakes I make with personal finance, software and real estate, follow me along here. Maybe you can dodge the same glass doors I walked into, or at least get a laugh out of it.