These 5 Simple Stock Investing Hacks Changed My Life Forever
“Everyone thinks of changing the world, but no one thinks of changing himself.”
― Leo Tolstoy
Taking a look at making small changes can seem banal, but strengthening your basics of trading is essential to building up a more disciplined sophisticated approach to investing in the stock market. These 5 hacks are things that I began using overtime to improve my own batting average in stock trading. They have literally changed my investing life and the outcomes I experience as an active trader.
1. USE A NOTEBOOK OR DAILY PLANNER TO WRITE DOWN YOUR TRADES
I first began using a daily calendar planner to write down my investing notes because I grew tired of always relying on some app to take notes in. Either my phone storage was full or the app needed updating. It became annoying and counterproductive to turn a simple task of taking notes about a trade into a 45-minute process of clearing storage on my iPhone or spending time resolving some other unrelated technical issue. Sophisticated systems are wonderful. They make the modern world function, but when they encounter a glitch you can lose years of notes or lose hours of time resolving a tiny issue.
For me returning to the old school method of putting pen to paper just made better sense. I used to write down the highlights of an investment idea on sticky notes, but now that I created the Avid Investor Calendar Planner I use that for even easier tracking of stock.
Here’s an example of what I would include in a quick investment entry.
An initial entry might look like this for Dell’s tracking stock DVMT-
Bought 50 DVMT @ $69
Total Money Out: $3,445
Follow up entry
Sold 50 DVMT @ $96
Total Money Brought In: $4,795
Above, I’ve added in the $5 trade commission fees on both sides of the trade. I keep it simple when entering a trade in my planner. The point of an investment tracking daily planner is not to write down a million data points. You have your brokerage account or yahoo finance for that. The point of taking quick notes in a planner is to track the high level IN’s and OUT’s of your investment strategies.
If I just want a quick note I won’t even write down the number of shares I own. I’ll just write how much money I’ve sent out ($X amount OUT) and once that position is closed how much money came back in ($Y amount IN). Think of cash as little worker bees who need to go out and earn a living. The worker bees (Your Cash) will go out and come back in unchanged, with gain, or with a loss.
IMPORTANT SIDE-NOTE: I would not actually sell DVMT right now. I believe it’s a strong buy stock, and as Dell prepares to re-IPO in the fourth quarter of 2018, I think the stock is set to have a very nice short-term upside in the range of ~15% from where it stands today as well as a longer-term upside after that. The reason you can even buy Dell right now pre-IPO is that DVMT is Dell’s tracking stock to VMWare. Anyway, I’ll write about this in another post, but to learn more about the IPO of Dell go here: http://investors.delltechnologies.com/news-releases/news-release-details/special-committee-representing-dell-technologies-holders-class-
2. TRACK YOUR INVESTMENT BEHAVIORS OVERTIME
The other way I use my daily planner is as a historical behavior tool. It’s so much easier to flip through pages and see how many times you traded a stock last month versus logging into an account and clicking through report views.
The benefit of tracking yourself in a planner is that you start to notice patterns. I noticed that I tended to place trades right at market open or in the middle of the afternoon. In thinking about why this was I realized I was trading either right before work or during my lunch break.
By switching to only using “limit orders” that have to be filled that day, I was freed from needing to watch a stock or place a disadvantageous “market order” trade during lunch time just because it was convenient.
Doing trades this way also let me “set it and forget it”. I could log in to my brokerage app once; set up limit orders and be done for the day. The fewer times I have to log into my investment account the better. Logging into your brokerage account leads to making more trades, and trading more frequently is something that I try to stay clear of, and that leads me to #3.
3. LOG IN TO YOUR INVESTMENT ACCOUNT SPARINGLY
Think of your brokerage account as a store. The “store’s” biggest desire is to sell you something. In this case that something is the action of making a trade to buy or to sell. The goal of a brokerage firm with a consumer trading platform is to get you to trade any type of security as often as possible. They only make money (at the most basic level) when you trade stocks.
The apps look really cool, but don't log in (too often)!
This incurs commissions and fees, i.e. profit for them, a loss for you the trader. The platforms, landing pages, buttons, and calls to action inside of your trading platform are optimized by marketing gurus whose very job it is to make sure you stay logged in for long enough periods to coax you into taking some kind of action within your account that will ultimately result in a fee paid to their company.
This sounds very cynical, but it’s just the basic reality of online marketing in the 21st century in any for-profit web environment. Ever wonder why you lose track of how much time you’ve spent been clicking through facebook? It’s designed to keep your eyes peeled to the screen. I speak from personal experience since my day job is as a front-end web graphic designer. I work with savvy online marketers all day who work to do this kind of thing in order to grow sales.
Be smart and aware that the fewer times you log in to your brokerage account the better. It helps you to save money on fewer trading commissions and to reduce your visits which in turn will lower the number of times you make a rash decision or spur of the moment trades that you later come to regret or not fully understand.
4. DO SOME LEVEL OF RESEARCH ON A STOCK BEFORE BUYING
Everyone researches a stock before buying it… right? I have been guilty of buying into a stock for the reason of hype rather than thorough research. Remember, investing in a stock without doing research is akin to gambling.
It’s easy to get caught up in fast-moving markets. Last year, there were a series of companies that announced they were going into the cryptocurrency business. Being very bullish on bitcoin myself, I was intrigued to look at these firms seeing huge bounces in their stock price. Closer examination showed that many of these companies were not stable, profitable, or well rated by leading analysts.
In the case of the cryptocurrency craze, the only reason those stocks were surging was that of public sentiment and lack of knowledge surrounding cryptocurrencies in general. Seeing a decimated stock like Kodak (KODK) rise 266% simply at the mere mention of entering into some kind of crypto-marketplace is not a strong enough case to buy. Checking on earnings, analyst ratings, and performance over that past five years would quickly reveal a struggling company who filed for bankruptcy in 2012 and has been on a steady decline since reemergence.
It seems like a no-brainer piece of advice, but seriously, look up a company’s financials, research their stock price over the past few years, and check on their rating with analysts from Zack’s, Morningstar, or Thomson Reuters before buying. Most brokerages include these analyst ratings within a stock’s information page. It’s an uneasy feeling to realize after entering a trade that you’ve partnered with a total flop of a company that every analyst has rated as “Sell”.
Good sites to research a stock’s overall rating and outlook:
*TRADING QUICK TIP: Knowing When to Buy
Love him or hate him, Jim Cramer has some solid advice on spotting a quality stock. One tactic he uses is watching a company’s quarterly earnings announcement. If a company beats analyst estimates that’s great. If a company beats estimates and raises guidance for the next quarter that’s a STRONG BUY!
CONSIDER BUYING NOW STOCK EQUATION:
Beats Earning Estimates + Raises Earning Guidance= STRONG BUY
5. BE WILLING TO DO NOTHING
An allocation fallacy occurs when you have more money than you know what to do with. It means you feel the need to allocate every dollar you have to do something. This could be $500 or $500,000. This happens at every level from organization to individual. The presence of money to invest does not mean you must allocate every last dollar to do something today.
This allocation dilemma arises when you have no exceptional options to invest your money into. Looking for a good investment should not be a rushed process. At times the answer is to simply do nothing. Warren Buffet once said, “You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing." This is one of my favorite Buffet quotes for investing and any other area of life.
If the Oracle of Omaha himself says that occasionally he doesn’t do a damn thing when opportunities are lacking, then I think it’s safe to say the average investor like you or I certainly encounter times when it’s most prudent simply to do nothing.
Being aware of these hacks/tips of investing has helped me to be a more disciplined trader (aka make more money). I catch myself all the time skipping one of these steps, and I realize that to do so is at my own hazard. I hope you use these hacks and adjust them where you see fit so that you too can crush it in the markets and grow more financially stable and confident in your future.
What are some simple tricks and hacks that you use to get ahead in savings and investing?