How I Started Trading – Part 2
How I Started Trading – Part 1 covers my introduction to the stock market and business world, mostly through high school and university classes, and my personal interest.
I have always wanted to start and run my own businesses, which I feel greatly increased my attentiveness and receptiveness in my business oriented classes. I had a deep passion to learn everything I possibly could about the business world – economics, accounting, finance, entrepreneur studies, mathematics, statistics, marketing, sociology, banking, trading, investing, and every other related topic. Thankfully, I still possess this strong desire to continue learning, studying, and applying my knowledge to business, trading, and investing. I still have the drive to start my own successful businesses as well as be a successful stock trader and investor, just as I did when I was younger.
I know I can, and will, succeed in my ventures. Do you know you can, too?
To recap part one of how I started trading, I took as many classes, I read as many books, and I learned as much as I could about the stock market, investing, and business. These were the first major steps I undertook on the road to where I am today.
I never had a lot of money. I was not poor, but I was not rich. You could classify my family as “middle” middle class. I did not have a trust fund. I do not have inheritances. Everything I have, or my family has, we have worked very hard for. I suppose my drive and desire to learn, and turn my thoughts and ideas into actions, with results, was partly driven by necessity. The necessity to survive in the world (or rather, in the U.S.), which seems to promote a certain lifestyle or standard of living. I don’t want to be poor, living on the streets and begging for change. I don’t think anyone would choose to live like that. I also don’t want to be rich, having more than I could possibly ever need or use, such as Bill Gates. I saved most of the money I earned. I bought what I needed and every now and then I bought something I wanted. But importantly, I saved and I kept saving. I realized after I had enough money, I could have my money work for me. Not me working for money. I like this idea of money working for me.
I continued saving my money.
One of my friends opened a stock market trading account. He was very excited about the possibilities the stock market offered. He was making money while he was in class. He was making money while we were playing video games. His trades and investments were generating cash flow for him. We would talk about his stocks he owned and the stocks he was looking at. He would research many companies, finding the ones that fit his investing and trading style. I would then research his stocks as well. I became even more fascinated with the stock market, and more dedicated to opening my own online stock account. I wanted to make money while I was learning in university, just as he was.
I did some math regarding capital gains taxes and stock broker commissions. I quickly realized commissions fees would eat me alive. I would have to make a large percentage gain on my stocks just to cover commissions fees. However, I was not deterred from my ultimate goals. I felt $1000 was the minimum amount I could invest or trade which would not quickly disappear with commissions. I figured I could buy two stocks, putting $500 in each one. Saving $1000 was my immediate goal.
I continued saving my money.
Eventually I had saved $1000. I opened a stock trading account with Scottrade, which had $7 commissions on trades – the lowest commissions I could find at the time. I was very excited. I could finally start having my money work for me, through stock trades. I had already done my research and I had two stocks in mind: Walgreens (NYSE: WAG) and Sirius Satellite Radio (NASDAQ: SIRI). As soon as my money cleared and the cash was available for trading, I bought these two stocks. I wanted to hold on to each of these stocks for at least one year, since I knew the capital gains tax was substantially lower after you hold for one year. I remember purchasing shares of SIRI at 1.71 per share, shares of WAG at 29.98 per share. My first two trades. YES! I had completed one of my goals. I had opened an account with a stock broker. I had bought my first shares. I now had money in the stock market. I was now making money with my money. Rather, I hoped I would be making money with my money. 🙂
I continued saving my money.
My first two trades turned out to be fantastic picks. Looking back, I had bought WAG and SIRI at a great time. The market was at a very low point. Almost immediately after my purchases, the market picked up, and I was making good money on my picks. These profits unrealized until I sold, of course, and just profits on paper. But I was still making money. Eventually, I sold my shares to lock in profits. I sold Walgreens for a return of about 16%. Sirius Satellite Radio was even more profitable for me. I sold SIRI for a return of 100%. I had doubled the $500 invested in SIRI. Selling my first shares was very exciting for me. My hard work had paid off – handsomely. I had reached another personal goal. I successfully used my money to make more money.
How I Started Trading – Part 3 coming soon.
Great post, great reading!
Your story is quite interesting and it makes me feel that I want to start trading and investing right now.
But I will study, read many books, and paper-trade first until I get confident about my investment decisions.
( Well, it’s a long way to go……. )
I learned that you spent lots, lots, lots of time for studying “economics, accounting, finance, entrepreneur studies, mathematics, statistics, marketing, sociology, banking, trading, investing, and every other related topics.”
I’m just curious, how’s your performance now?
Do you think “stock market” becomes “non-risky” place to make money consistently when an investeor is thoroughly educated, experienced, and talented?
( In other words, is it possible for someone becomes “post Warren Buffett” or “post Peter Lynch” at any time of market, even in bear market? ) .. OR.. are you the one? 🙂
I know lots of bright and smart people challenged the market over a long history with many different strategies but not everyone was successful. I wonder if Peter Lynch and Warren Buffett were the “luckiest” or the “smartest” investors.
Hi PW,
Thanks for the kind words. 🙂
The one thing I did not do when I started trading was “dive right in”. I studied a lot, researched a lot, and most importantly I saved a lot.
I’m working on a list of all the business and stock market books I have read with a short review and my opinion of each one. This will likely have it’s own category.. something like “Book Reports” we all had to do in school.
During the past few months I have had to work the second shift at my day job, which unfortunately does not leave me much time to actively trade and watch the markets – which is necessary for successful trading. I have still been doing a lot of research and reading a lot of news, but I have not been actively trading. I have actually been doing more investing, particularly in ETFs. I’m working on an ETF article right now which should be up soon for those unfamiliar with ETFs and how they work. Also you can check my Investing Winner blog at http://www.InvestingWinner.com to read about my investing activities.
Since I’m not currently able to trade the way I feel I need to, my trading portfolio has pretty much gone sideways – no substantial gains or losses. My investing portfolio has taken a recent hit due to the market correction and is currently down about 3%, but I expect this to fully recover and have a very strong finish to the year. I’m going to be holding the stocks in my investing portfolio for at least 1 year and most likely a few years. And, after you hold 1 year the capital gains taxes are nearly cut in half. 🙂
The stock market is always risky. I never think the stock market becomes a “non-risky” place to make money. However, there are strategies you can use to reduce your risk, such as setting stop loss orders, risk management techniques, diversifying (I do NOT believe in greatly diversifying in a large number of stocks, but a small number of stocks in diverse sectors is a plus, especially in investing).
Education and experience help immensely in reducing your risk, but does not make the market a “non-risky” place for your money. I feel education is more important than risk. You can teach yourself every aspect of the market and know what to expect in certain situations or how the market may react to certain events. Experience helps in dealing with losses and doing research or Due Diligence. Experience can also help you make the most of earnings seasons (coupled with good research!).
People like Warren Buffet or Peter Lynch are very unique individuals. I don’t think it’s realistic for us to “become” the next Warren Buffet. But, we can learn from his example, from his books, from his investments. I do not believe I am the next Warren Buffet. That being said, we all need to try our hardest to beat the markets as Warren Buffet has done, but this comes back to doing a lot of research (Due Diligence), reading a lot of news, using strong strategies (such as risk management or valuing stocks), and strengthening ourselves psychologically or mentally. There’s money to be made in bull and bear markets, but the strategies are not the same. For example in a bear market you can short stocks if your are mentally up to the challege. “Know when to hold ’em. Know when to fold ’em.”
I’ve written a previous article about how I do not necessarily believe in luck, especially when it comes to the stock market and similar things like casino games. The stock market comes down to probabilities and numbers, not luck, in my opinion. I think people that have developed a single strategy are the ones that may do well in the markets for a while, then their strategy no longer applies and their portfolio takes a huge hit. My opinion is that our trading and investing strategies must constantly change and develop. The market is never the same each day – it changes every day. As such, our trading and investing strategies must also change as the market changes. There are some core principles that can help us define our strategies, but using a single set strategy is not the answer for long term success.
Bruce Lee has a great quote regarding his martial arts style or strategy. His style is like water, able to meet any opponents style because it’s constantly changing and evolving. Think about water for a minute. When water is in a cup, the water forms the shape of a cup. When water is in a bowl, the water forms the shape of a bowl. Water can form around any container. Bruce Lee’s martial arts style has no limitations, no strict rules, – forming and changing as necessary.
Here’s his quote:
“Don’t get set into one form, adapt it and build your own, and let it grow, be like water. Empty your mind, be formless. Shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle and it becomes the bottle. You put it in a teapot it becomes the teapot. Now, water can flow or it can crash. Be water my friend. Adapt!” – Bruce Lee, on martial arts styles (or systems) and strategy
I hope this long explanation helps you or someone else. These are just my thoughts and opinions. Obviously I’m not a super investor or trader, just doing what I can to succeed and (hopefully) beat the market. 🙂
Thanks again for the kind words, I really do appreciate it. Comments such as yours help me to grow as a trader / investor and I hope I am helping you, too. One way we can educate ourselves and learn is by discussing ideas and thoughts with others. By asking questions and providing answers. Communication.
Best Regards,
Nick
Thanks enhansed!
I really enjoyed reading your reply to my question.
Bruce Lee’s quote is awesome =)
I wrote that down so that I can refer to it someday in the future.
Do you know where I can find “transaction records” that
Mr. Buffett and Mr. Lynch traded in the past?
I thought it would be one of good ways to learn from the masters
by using their transaction records with historical market data/news to understand why they made such decisions.
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Information to share with you:
[ Technical Analysis Softwares ]
– http://amibroker.com/
– http://www.rightedgesystems.com/
– http://www.smartquant.com/
Most successful traders that have been in the game for the long term attest to the fact that trading is never exciting as you say. It shouldn’t be.
Trading is simply the rather boring execution of a trading plan.
From my own experience I can say that it is true – I made the biggest trading mistakes when I become overexcited or have any emotional connection with a position. I found that my best and easy trades have come from the rather boring process of following a plan.
I think that if you do connect emotions of excitement with trading, then you are treating trading as gambling (although I’m still on the fence on that issue of trading being gambling).