Lessons Learned Over My Last 5 Years of Investing

Over the last five years I’ve spent a lot of time paying attention to my finances. I received my last W2 paycheck in February 2019, so I’ve have a lot of incentive to. Since that time I’ve survived on money saved and money invested. 

When I first left my job I did’t know much about investing. I did’t know much about the stock market and I had limited exposure to it. Aside from a company 401K (with no match) and the purchase of a 1-bedroom apartment, I had barely any money invested. If it wasn’t for a week long crash course in investing and the market during a vacation with a friend, I would’ve never gotten started.

Over the years since that trip I’ve applied what he taught me to run a mostly successful portfolio. That said, with experience has come a handful of lessons, some of which I’m sharing here.

You have to take your money off the table when you get it. 

The stock market has a genius way of lulling you into thinking you’ve made money (in some cases a little, in some case a lot), and that you will continue to do so forever (as has been the case with the bull market over the last 10+ years, the brief “recession” at the beginning of COVID not included). But it’s important to realize that the only time you make money is when you take some off the table and sell some of your position. Until then it is all at risk. If you’ve sold zero shares, you’ve made zero dollars.

The feeling you’ll encounter is FOMO, missing out on more gains (greed). There’s a great saying I’ve heard multiple times recently.

“Bulls make money. Bears make money. Pigs get slaughtered.”

To overcome that fear you have to ask yourself two questions and be honest.

1. If you wouldn’t sell some shares at a 50% gain, would you really sell at 60%, 70%? Probably not. If you’re unwilling to sell at 50%, greed has likely set in a you’ve become disillusioned that your stocks will only ever go up.

2. Will you be more satisfied taking your gain or watching your gain turn into a loss? This one is obvious but it’s one that feels like it could never happen to you… until it does. Like it has to me on several different occasions.

It is a much better strategy to take gains you can live with, and wait for the next opportunity.

There will always be an opportunity to make more money.

This is a rule that applies to everything in life, but is particularly true when it comes to finance, investing and business. It’s easy to get excited when presented with an opportunity to make money, but most investment opportunities will come with little to no returns.

I’ve been presented a wide array of business ideas to invest in. An email organizer that’s a plug-in for Gmail. A women’s focused wellness brand. Hotel development. An AI focused relationship management system. I’ve passed on most, and invested in the ones with guaranteed returns (i.e. preferred rates of return in real estate).

Jumping at every opportunity thrown your way is a good way to lose a bunch of money and come unhinged. It’s something I saw at my job. Our inability to pass on growth opportunities (whether they were clearly risky or just didn’t make sense) was the main reason for the companies eventual demise.

When it comes to stocks, we all want to own the next Tesla. But picking Tesla to be a winner is a crap shoot. My friends father who is widely successful, sold all of his position in Tesla before it took off. He had a feeling it would do well (which is why he bought it) but he ultimately cashed in when he thought it was a dud.

It’s important to take some risks in your portfolio, but not every IPO (initial public offering) is going to be successful (in fact if you read this newsletter you’ll see the trend is in fact the opposite). For every Tesla missed, another one will arise. Pay attention for the one that makes the most sense for your portfolio (as Sam Dogen puts it, a company you use, like and trust). 

For every opportunity missed, another one is right around the corner.

When everything is important, nothing is important.

There has been a handful of times in the last five years where I’ve had more than 20 individual stocks in my portfolio. I foolishly believed that I (since I was not working and had the time) could effectively manage a portfolio of this size. The gains in the market from 2018 up until and past the pandemic crash made me believe I was right. But once the bottom started to fall out of many of the companies in my portfolio, I quickly realized I was wrong.

Instead I’ve refocused my strategy and I’ve been focusing on thinning my portfolio down to less than 10 stocks made up of some of the main stays (Apple, Microsoft, Amazon), some diversification (Kimco real estate investment trust, REIT) and mostly the Vanguard ETF VTI. A portfolio this size, with companies I “know” is manageable.

From time to time I’ll pick up a new individual stock that seems poised for gains, but I keep making myself come back to the lesson, when everything is important, nothing is important.

Money is very personal.

This is probably the most important less of them all. It’s something that Morgan Housel talks about in his book The Psychology of Money, and it’s something that Sam Dogen (aka The Financial Samurai) talks about on his blog and in his book Buy This Not That. 

The example Morgan Housel uses is paying for his house in all cash as opposed to taking out a mortgage. Almost anyone you ask will tell you that taking out a mortgage is the right choice, especially in times when interest rates are at historical lows (like they were up until the last couple of years) and the market is returning near double digit average returns. But as Morgan puts it, he just didn’t want the weight of a monthly mortgage payment hanging over him.

I’ve recently had a similar experience. Over the last few months I’ve liquidated 20 - 30% of my stock portfolio to have some extra cash reserves as my girlfriend and I make a move to Colorado. I’m a believer in compounding gains, but in this case I’d rather feel secure knowing the cash is there when we need it, then having to liquidate positions when (if) the market takes a downturn.

The thought of having to sell stocks for bills when the market is not performing is one of the main things that will keep me up at night. Conversely, even if the market takes off, and I have cash on the sideline, I feel good knowing my gains are secure. For sure the 5% return on my cash sitting in a money market fund helps, but I’ve already seen some missing gains on positions sold that I’ve had to learn to accept. 

I’d rather feel secure knowing I have the cash.