Diversified Bullish

The Waiting Game

One of the hardest parts of investing is not doing anything at all. You need to wait for your investments to compound over time. The problem is the narratives that surround your investments. Adding more uncertainty, unexpected "black swan" events like wars and COVID can scare investors into thinking they know what's going to happen next.

I am not against actively managing your portfolio. Sometimes, we need to consider new information that changes our theory for why something will be a solid investment. For example, if a company is hemorrhaging money and not showing any signs they will turn it around. But there's still a chance they might figure it out some years down the road.

There is a gray area of investing where risk meets reward. You can choose to stick with an underperformer. If the company eventually dominates their sector and takes market share, leading to profits then you'll be rewarded. More risk, more reward. I personally like to include a few speculative plays in my portfolio, but honestly it doesn't ease your nerves to watch a company you own struggle to reach profitability.

My most profitable investment that I'm still holding, Tesla, falls into this category. I thought the world was destined to have an electric vehicle future before many saw the writing on the wall. Before the company turned profitable, I bought a bag of shares with intent to hold for a long time. Luckily, they turned their first annual profit in 2020 and continue to improve their results.

So far, the EV theory has paid well and the electric vehicle movement shows no signs of stopping. This story is an example of how you can invest on what you think the world will look like in the future, even if the situation is questionable in the present moment. Just know that it might take longer than you think to play out, or you could be wrong and it never plays out. The friction of this uncertainty in the outcome is what makes investing hard. Sometimes, there are simply better options to reallocate your losses into another more promising company that already has established a sound balance sheet.

I propose that many times, but not always, the best action is not to make any moves. You've got a large unrealized loss, but how do you know that market volatility won't swing the other way on your position? If you believe the company will be important in the future, hold.

Investing is tough because it's easy to be convinced by a stranger or talking head online that they know what's going to happen. More often than not, it's best to play the waiting game. Extend your holding period and the likelihood you'll profit increases.

Make Small Bets

Small bets can have outsized returns. If it goes south, you've also got less on the line. Have conviction? Make a larger bet. Not sure about an investment? That's a solid candidate for a small bet. You find out the company's outlook is now questionable or management is not meeting the mark? You could always sell half. However, the largest gains come from letting asset value compound over time.

The size of your bankroll determines your range. Consider making some small bets in stocks, real estate or even starting a business. There is less stress in a small bet. For me, it's $50-$500 up to $1,000 that I consider a "small bet" in my taxable investor brokerage account. Anything greater than that and it's no longer a "small bet" to me.

I even have some $50 or $100 positions that I might add to someday. This is the magic of stocks. Value tends to go up over time. You could have bought almost any stock at the end of 2022 and would riding gains. At the time, no one knew what would happen.

Now, the general outlook for stocks seems favorable, with consensus that the recession is cancelled. Year to date, the market is mostly reacting in a way that suggests we were in the "oversold" range at the end of last year. Are we now overbought? I doubt it, but we'll see! My theory is that now is a still a decent time to open some small bets to gain exposure to exceptional asset value growth.

My portfolio is tech heavy with some strategic industries like electric vehicles, solar energy and cloud computing. I also reaped some of the sudden 2023 AI buzz in Tesla, Microsoft and Nvidia with tech prices getting a lift pretty much across the board.

Microsoft is a core position in my portfolio. Nvidia was a medium sized bet that resulted in a 3x bagger gain. It's now a small bet again after I took some profits. Even on a small bet, booking 3x your money is a pleasant payday. After making the original bet in 2020, I'm letting my $1000 cost basis ride in this stock.

It's hard to encourage anyone to get into a high multiple valuation. I say that knowing this semiconductor company is a one of my best small bets currently. Risky or frothy prices might be right for a tiny bet with the possiblity of adding more later on a dip. Sometimes it pays to buy a company on such a trajectory but it honestly scares me to buy it now. So I'm holding my small Nvidia bet for a long time.

Afterword

This is not financial advice nor all writing on this blog. Learn to assess the health of a business. It is an art based on valuation, cash flow, profits, management, margins, market share, strategy, reinvesting assets for compounding growth and so on. Investing is unpredictable and risky, sure, but make some small bets.

Getting Out of LYFT Stock

I'm an advocate for "buy and hold" investing, meaning if you are making an investment it should be for a long period of time before selling. However, you may need to cut a position due to a company's failure to turn a profit or dependency on bending public policies to their favor. This was the case with LYFT, based in California, the battleground of workers rights that shifted over the years as ridesharing went mainstream.

I saw a game-changing service to society helping people get where they needed to go. I also moonlighted as a LYFT driver for a few months in 2017, seeing first-hand how they onboarded drivers. LYFT filed an IPO in March 2019. I had $2,600 to invest and wanted a piece of those huge ridesharing profits that were going to happen someday. In retrospect, this was too speculative of an investment. LYFT was growing riders, but profitability hadn't been proven yet. Being in my 20s, I was just starting to invest and eager to start buying stocks with the extra money I had.

I paid $65 per share for LYFT shortly after its IPO (Initial Public Offering) in 2019, under the IPO price of $72. Another lesson from this trade is that it more risky to buy an IPO close to its debut in public trading. But I couldn't resist so I put it on LYFT shares.

Another thing I learned from holding LYFT stock is to consider the risk of political impacts on your stocks. In the case of LYFT, they and UBER were typically involved in regulatory battles with the state of California over the classification of their drivers in the past 10 years. Are rideshare driver independent contractors? The debate continues. And each time it blew up on the news, I looked at those shares and thought... I signed up for this? Court battles. A questionable public image and an unprofitable business to boot. Having tried LYFT's rideshare services myself, I thought their culture was strong and they'd be a leader in a promising new industry. We'll see if they ever make it.

They closed around $8 per share yesterday. My investment? Within the first year, I was already down considerably and endured several painful earnings reports. They were nearly profitable, but then were hit hard by pandemic lockdown. I sold out from 2021 to 2022, selling each share at a loss. 90% of the shares were sold in June to October 2021 near the end of the most recent bull market. Only with hindsight, can I now say I feel strongly it was the right call. If I had left the money there, I'd be sitting on $375 in market value in Lyft and over $2,000 of unrealized losses.

I sold the position incrementally, ranging from $38 - $63 per share. I sold my last 5 shares at $38 per share in Feb. 2022. Having cleared the position, I now know from experience, there are times when you should cut your losses. In total, I limited the damage to $546 lost and re-allocated the remaining $2K to other investments.

Looking at LYFT in 2023, it's down 89% over the past 5 years, unprofitable with a real possibility of bankruptcy. Recently, the founders have stepped back from operating the company. They're also low-key saying they're open to a buyout. Maybe they will turn it around, but I'm no longer on the hook for a few grand if they don't. I now try to buy companies that have already established profitability and growing. This is my LYFT story, may we all stay away from such investments and realize quickly if we've miscalculated.

Regression to the Sea

A market of stocks reminds me of a school of fish. They swarm in the same general motion, sometimes using their collective to protect each individual fish with natural deception. Some of the fish are stonger than others, use their competitive advantage to survive and help the other fish. But if a fish becomes too weak, it gets eaten. Same with stocks.

In January 2022, the stock market was bubbling up together in a cash injected, inflation-fueled blow-out. Then the direction of the tide shifted. After pulling back strongly into summer, a brief respite in July before getting hammered even more, with a possible bottom reached in late December. Warren Buffett once said, "Only when the tide goes out, do you learn who has been swimming naked." It's the weaker companies burning through cash struggling to survive. They get metaphorically eaten. Thankfully, stocks are starting to bounce back. It's now a "stock picker's market" or so I've heard. If you bought anything in December, you're probably up a decent amount on the investment. In a few cases, my new positions and DCA buys from within the past 6 months are up 80%. Of course, I'm still down 30%-60% or [gasp] more on too many positions. Regardless, I tend to buy and hold with an option to sell at breakeven if I don't like the company's power structure or earnings reports. I can wait a long time and intend to do so with all my stocks. Sidebar: did you know whales can live up to 90 years? They're probably good investors.

Like fish, stocks valuations are loosely tied together, especially at an industry level. If prices go up a lot, they'll probably reverse eventually. If they recently pulled back hard, there is a better chance for growth at a reasonable price. Sometimes you have to load up when a stock is down over 20% in a single day. When all hope is lost, yet another regression but this time upwards after you bought it if you chose well. It's not always going to work out, but lowering your cost average is generally considered a good idea in investing.

Nevertheless, no one really knows what the market will do. The stock market's short-term direction is about as random as a school of fish. When the market regresses to the mean and sells off: buy the fish that is consistently makes the right moves. It has these characteristics: quickly acquires customers and keeps them, protects or grows their product profit margin, survives economic drawdowns, socially responsible and guides earnings appropriately. That's a catch!

10 Ways I Keep Up With My Stocks

This post summarizes ways that I keep tabs on the companies I'm holding in my investment portfolio. I tend to hold stocks for a long time, regardless of stock price movements. It helps to see the whole picture, industry, customer mentality and metrics like free cash flow and profits. These are ways I try to glean insights into a company's future potential or lack thereof.

Here are 10 ways I keep up with my stocks:

1. Use a Charles Schwab investor checking account to buy assets + make trades.
2. Watch CNBC for free in the Charles Schwab mobile app.
3. Track dividends received in Charles Schwab account.
4. Use Google Finance to manage watchlists and monitor daily prices. Schwab also has a watchlist but I prefer Google Finance's UI for watching short term price movements.
5. Observe the company "in the wild".
   • If public, visit the company and observe what you see. Is it a well run operation? Are customers happy?
   • Note the frequency you see people choosing the company's products day to day.
   • Bonus points if you are the customer, you know intimately what value the company is creating.
6. Earnings calls: listen to the call live or most companies post the call transcript online.
7. Read investing blogs and books from the greats. I subscribe to my followed blogs via an RSS feed. Here are a few I recommend:
   • The Reformed Broker, Josh Brown
   • Of Dollars and Data, Nick Magiulli
   • Benjamin Graham, Intelligent Investor
   • Peter Lynch
   • Warren Buffett
8. Monitor sentiment with Twitter and Reddit. Read the Twitter cashtags for individual stocks and browse social media for overall sentiment monitoring. Beware there are emotional posters with an agenda, opinion or position that may contradict yours. I find it useful for gaining a sense of general feelings about the market or shares in a company.
9. Use finance Python libraries, like yfinance to see more complex financial calculation about a stock. I wrote in depth about the endless tools you can apply for financial calculation here on my other blog.
10. Talk to people about their investments. What are they investing in? What's working for them? What are they excited about? They have a perspective that differs from yours that exposes you to a new concept or industry.

Achieving $50 / Month in Investing Income

In March 2023, I achieved a new milestone of passive investing. Since beginning in 2018 with approximately $15,000 in savings, I've accrued a six figure portfolio of funds and stocks with a "DCA and buy and hold" long term mentality. I did this by holding a full time job and earning multiple pay increases along the way.

About 50% of my retirement funds are in a managed employer match 401(k) with a different bank. My primary bank is Charles Schwab. Most of my self-directed IRA is collecting dividends with Schwab index funds (SCHB, SWPPX and SWTSX) and MSFT. My self directed IRA has a smaller weight of non-dividend growth stocks also. In my taxable portfolio, the core dividend earners are stocks like MSFT, NKE, AAPL, F and NVDA.

Additionally, 3-5% of my investment portfolio is committed to cryptocurrency assets. After buying incrementally from December 2020 to 2022, I now have market value exceeding $5,500 staked in Ethereum. Approximately 60% of my crypto portfolio is in ETH, followed by 25% Bitcoin, which does not have a staking protocol. Over the past 7 months, my staking rewards netted me $12.48 per month by my calculations.

Passive Investing Income Breakdown
Stock Dividends: $38/month
Ethereum Staking: $12.48/month

Combined, they add up to a investment income of $50/month and counting with time. Hold dividend stocks and index funds. Stake Ethereum, if you can handle elevated risk that surrounds crypto. Then again, with the recent banking shakeout, maybe a more decentralized store of value is intriguing. Find a job or start a business, keep saving and reap the rewards of investing. This is how I achieved a new level of passive income. In both, their dividends are automatically re-invested.

This post and all posts on this blog are not financial advice. All investment decisions have personal risk and you should assess them thoroughly before taking any financial actions.

Volatility, Friend or Foe?

Volatility is scary because when a stock thrashes down, it hurts pretty bad. Investors need to set aside their emotions and ask themselves, "Has my thesis about this company changed?". If you still have conviction, the market's volatility has created a possible buying opportunity.

It sounds simple put into words, but observing the market in real time never goes so smoothly. Your perceptions of a "bottom" or a stock's range can be way off. Volatility is an opportunistic investor's friend, and a timid or inexperienced investor's foe. However, even a seasoned pro can get it disastorously wrong and get wiped out by a falling knife. Make volatility your friend, but be careful!

Should You Hold 5 Stocks or 30?

The topic of how many stocks you should hold is ambiguous. An old investing adage is 'concentration builds wealth', but is that true? I'm not so sure. It depends on the skill + experience of the investor and their conviction to hold the assets.

As a retail investor with less experience, I keep a diversified portfolio of stocks and index funds. I'm holding around 50 stocks and funds. Diversification lowers your risk and exposure to any given individual position. However, I do realize that concentration yields benefits like intricately focusing on the companies your money is riding with. Investing is an art steeped in allocation. When conviction (and profits) are high, I think it's acceptable to keep a higher allocation of such securities.

Gains Happen in Bursts

Gains tend to happen quickly in a short time. This is a reason to hold onto those shares a little longer. That sudden unpredictable catalyst might be around the corner.

When a stock moves, it can happen after years of stagnant price action. Don't miss your gains by exiting at the wrong time. If earnings are heading the right direction, the gains will come.

A List of Financial Cliches and Terms

1. "soft landing": implies graceful economic transition
2. "pivot": implies the Fed will switch its interest rate policy
3. "bottom": implies a time where the market will irreversibly swing to the upside
4. "short squeeze": price goes up due to short sellers being forced to cover their positions
5. "place to hide out": reference to a stock as a shelter or place unaffected by market drawdowns
6. "growth stock": stock that reinvests dividends to grow rather than paying to investors
7. "dividend stock": stock thay pays dividends to investors
8. "dead money": momentum of a stock has stalled and not changing anytime soon
9. "rekt": getting decimated by a position's losses
10. "falling knife": stock price is falling fast and risky to catch
11. "due dilligence (DD)": researching a stock's prospects to generate money
12. "money on the sidelines": reference to how much cash is waiting to be deployed into stocks
13. "dry powder": refers to amount of investable cash you have
14. "FUD": fear, uncertainty and doubt raised by a stock's haters
15. "whales": big shareholders that move markets when they enter or exit a position
16. "stagflation": reference to a stagnant, inflation plagued economy
17. "priced in": the price is all knowing, common catch-all trope
18. "forward looking": the market is out in future events and pricing accordingly
19. "overvalued": insinuates the market price is wrong about a stock, opposite of oversold
20. "oversold": implies the stock price has swung to the downside and is primed to bounce back
21. "valuation multiples": comparison of current price vs. earnings + cash flows
22. "trading at a premium": implies the stock commands its lofty valuation against its earnings
23. "long term": 1-5,10 or > 30 years, depending on who you ask!