I have been obsessed with the stock market since the 4th grade, when my class did a stock market game. We did it again in the 5th grade, and then to add icing on the cake, my 6th grade teacher told us a story about how his friend the stock broker arrived at work on Wall Street in a limousine everyday.
When I returned home during the summer between my freshman and sophomore year of college, I opened an online brokerage account. I had free trades for 90 days, and boy did I stick those free trades to the broker. The couple thousand dollars I was trading was from hard work during summers and weekends. My research was whatever I could find on Yahoo Finance, and I was off and running. I hadn’t even read a page of The Intelligent Investor. I thought of myself as a hedge fund manager, except with no outside capital, and come to find out no real investing strategy or talent. This was the summer of 2007, and about five months before the stock market peaked before the Great Recession.
Some may think that the big decline I felt right away would have scared me off, but it had the opposite effect – I was hooked. I loved the adrenaline rush of trading. When I would come up with an “investment thesis” (read: hunch) on a stock, I’d buy it, and then it would do exactly what I thought it would do. It was the best feeling. It more than outweighed the hurt of the bad beats. I continued on this path for another seven years. Not investing by any means, but just trading in and out of stocks. Essentially, it was a legalized form of gambling. Over that time, I never thought to actually look back to see how I was performing against the broader market indices (it wasn’t good… at all).
Seven years after I opened that first online brokerage account, I discovered online personal finance blogs. This lead me to the financial independence, retire early (“FIRE”) community, and more importantly index investing. Now I’m not saying index investing is the best way to invest. What I am saying, is that it clicked with me, and I’ve stuck with it ever since. Everything about index investing made sense to me. Why was I spending many hours each week, researching stocks, researching the stock market, and watching live stock quotes, while I was under performing the stock market itself? It was the best investing decision I ever made. Unfortunately it took me over seven years to figure it out, but it was better late than never.
I sometimes wonder if someone had told me about index investing when I was 18 or 19, would I have listened and understood? It’s hard to look back and answer that question with any certainty. If I am being honest with myself, I don’t think I would have cared. I would have continued to trade and tried to beat the market and get rich. I was a confident teenager, with little actual investing and market knowledge. But if someone had opened my eyes to the index investing world, maybe it wouldn’t have taken seven years to figure things out. Maybe it would have only taken three or four years. But, in the end, I think I needed to take my lumps.
4 thoughts on “Reminiscences of a Stock Trader”
I think you have to learn most of this sort of thing by experience. I went through the day trading craze (also the online poker craze – I think the rush and immediacy of outcome makes them related). While I do a good bit of index fund investing, I still pick a good number of individual stocks. I’ve been a fan of the Motley Fool style of investing and have stretched that into options strategies. Not with all of our money, just a discrete portion of the portfolio. It’s funny, I did the calculations on what my overall return has been over the last 20 years and it was just a shade less than if I’d just put it into VTI and let it run. All the work, all the study, and I’d been as well off (slightly better) if I’d just put it in a fund and went swimming instead of plowing through annual reports. There’s a lesson there I guess for someone who is just starting out.
I think this story would serve a lot of 20-somethings very well.
Great post. This is a process that a lot of investors go through at some point as they mature. I too eventually gravitated to being a bit more passive. However, the difference for me is that I focus on a rules-based process that provides me with direction on what to invest in.
I used to do the research like Oldster, but found the workload and return was not there. However, I don’t think a buy and hold works for me, so the balance with index funds and a rules-based approach has helped. It took me a long time to get there, but I did.
Sounds like we followed a very similar path and history!
I definitely didn’t listen over a decade ago and lost my shirt on individual stocks as we went into the Great Recession. Well, that and I sold when things were low and the world was ending.
If I had today’s mentality, I think I would have stuck it out. Of course, I would have been in index funds via ETFs instead of stocks!