Real Trading Experiment: Be a Fast Chicken
Now, this post will most likely spur criticism, if not complete denial or hate. What I hope though is that it will share some light onto things a lot of people don’t have access to, knowledge of or experience with. I will be giving you a short overview of how I finance my traveling, gadgets or christmas presents - and more importantly: Make a new investment and have you follow along in real-time.
Before you get too excited: This is a highly risky strategy, it involves dealing with a lot of money and is barely (marginally) better (if at all, at times) than hitting a casino. There is no sure-fire way to achieve wealth, but if you have an interest in (attempting to) understanding and playing highly complex structural institutions (by that I mean the financial markets), read on and evaluate:
This year, if the math adds up (more or less), I paid for all of my flights, hotels and gifts with my stock market earnings. Little by little, one after the other. My strategy is dead simple. For my system, Warren Buffet’s way does not work (although, fundamentally, this is the right thing to believe in, in times where Goldmann Sachs and banks didn’t really participate in the stock markets). He invests long-term, in well-established big market companies, with trustworthy executives (haha) and has no issues staying in for 30 years if needed. I don’t have that time or will. My investments will happen as fast and short-term as feasible. And that’s rule 1 of my strategy:
RULE 1
Good times: Don’t be greedy, be a fast chicken instead.
Bad times: Pretend you’re dead, but don’t die.
In good times: You invest money, the stock goes up, would you sell now, it would net you a nice $200. But there is sooo much more potential, right?! – I’ve had this happen to me so many times, where I exited early, and saw the stock price go up more to $500, $800, $1200 net earnings, except that I had already sold at $200. This hurts, despite having made an easy $200. But that’s what I mean by greedy. Your only goal is to make a profit, however small.
Every trade comes with a trading fee (mine is around $8 per buy/sell each, with Fidelity), so the minimum for me is $16. That’s easy. I am typically aiming for $200 to $600 in profit. If I reach the happy zone, I’m giving it a maximum of two or three more days if things look really really good, otherwise, I’m out (like a chicken).
In bad times: I’ve had a big investment with Expedia, it went up to $600 and I waited one more day. The next day, Expedia crashed by -30% and I was in for the long run. This is though, emotionally. But nothing else. I’ve had the same happen to me a couple of times (A-TEC Austria, ProSieben), where my stocks went down -50% and didn’t recover for a while. If something crashes by more than 20%, you have to evaluate if the company will go bust (it happens, Lehmann Brothers) or if the whole market is being pushed down (check the indices). If you really believe in the company, and absolutely don’t understand this big drop, then stick with it. It took me 4 years to sell ProSieben (but I made a 800 EUR profit, which is better than my bank would ever be able to give me). I wanted to sell hundreds of times, same with Expedia (made a $470 profit after it stabilized). If this happens, your money is locked, that’s everything you have to worry about. Only invest money that you can afford to be locked away for up to 5 years. Most of the time it takes 2-3 months to recover, in a stock market crash it’ll take a year or marginally longer. Pretend the money is dead, but don’t sell and cut the losses…
These are my past three investments and exits:
I have sold all of them and made a little bit of profit. My typical investments are between $6.000 and $15.000 (at the very max). This might be a shocker to a lot of people new to trading, but it’s an ideal trade-off between short-term gains and risk. If you have $10.000 in the bank, and that’s all you got, don’t, EVER, think of investing more than $2.000 or so. It’ll turn you days into living nightmares. It’s too much risk. Revisit this post later, when you are feeling easy to lock away $6k to $10k, possibly for years. It’s your own fault if you don’t follow this advice, it’s the only thing I can guarantee, you will not be happy if things don’t go well. This is rule 2:
RULE 2: The world above zero is limited by your greed, the world below zero by your patience. Don’t make the investment, if you can’t afford the patience.
TODAY’S PURCHASE
Anyways, I made a new investment. I thought it would be a great experiment to have you all participate live in this. I understand this is sort of weird to have on the internet, but I also understand that we need to break some barriers and people should learn about things, even if it’s not necessarily something they would do by themselves. And, most importantly, this is the real deal - if I lose money, you’ll be sitting at homing laughing your ass off and not have spent a single dollar.
This is my investment:
What I do is, once the order goes through (I’m on European time, so we’ll have to wait until 3:30pm here), is to update this page with a link. I programmed myself a super simple ticker that only shows me how much profit I already have, would I sell right now. This makes investing (through my strategy) super simple and straight forward - and saves me a lot of time during the day (I check it on my phone).
UPDATE:
Follow the experiment live on this website.
Well, this is what the numbers look like after day 1. I wanted to show you this to make you understand the often tough times when things are starting to roll. We’ll be fine, but this is often how it starts and can/will make one uncomfortable.
Legal disclaimer:
I am not a financial expert, consultant or otherwise versed in the financial industry. I am purely interested in this as a hobby and did not imply this is what you should be following, copying or doing. Keep in mind that short-term trading has tax implications (considered short-term gains) and this will be taxed higher than long-term investments. It’s your duty to report your trading activity on your yearly tax forms. Consider this material as an inspirational piece, never as advice despite its format. I urge you to stay real, honest to yourself and don’t ruin anything you or someone else close to you built with real hard work. Stay happy.
