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Rookie Mistakes
In my intro post, I mentioned that I've only been an active investor since 2020. I did have a brief stint in 2013, where I debated buying this penny stock patent portfolio company (basically, they buy patents, litigate violators, collect royalties from winning cases, etc) and tesla. Yep, we all know which one I picked. The ironic part is it was part of my plan to pay off my student loans (I only needed to double my money 7x in a row, how hard could it be??). Had I invested in tsla and sold at ATH, I would have had enough to pay off those loans. I apologize for the length of this post in advance, but I get long winded and have made lots of mistakes 🤣

Now hindsight is 20/20, and I just as likely would have sold tesla up 100% since my plan was to keep doubling my initial $1k investment, but after losing $987 of my investment, I stuck to funding my 401k and pretending the stock market didn't exist, missing one of the best bull runs (if not THE best) of all time.

Having been scared out from penny stocks 7 years ago, you'd have thought I'd stick to safe investments this time around. Apple, Microsoft, etc, right? Nope. I invested my first dollars into $TTOO and $AYTU, two penny stock covid test kit plays. I knew nothing about either company, other than they claimed to be leading the pack on these test kits. Ironically enough, from what I can tell I actually made money on both of these stocks (could have made a LOT more on TTOO but held too long).

In anticipation of this post, I downloaded all of my transactions out of Webull since inception, filtered for all positions that had a net 0 shares and calculated my gains/losses. It shows my successes, but also forced me to confront my biggest failures with dollar figures associated. I'm going to break it up into a few different posts, because I believe there is enough content there, but from what I can tell, there are a few recurring themes and lessons that I've gotten over the past two years.

Let me know which ones resonate with you, or which ones you want to hear more about! I've got specific stocks and stories for each one of these to expand on later, but I want to know who else had made these, and which stories people would like to hear first.

1) Penny stocks - the thought of buying lots of shares for cheap and selling them higher (To the moon!) is too enticing to new investors. If I have 100 shares, and the price goes up $0.50, I made 50 bucks! Fifty cents is easy, apple goes up or down that amount every day! Silly me, the accountant, not factoring in percentage increases and only looking at dollar increases.

2) investing outside competencies - I'm a former auditor, I've worked in and audited manufacturing companies, local governments, insurance companies, etc, so I feel that I have a wide variety of businesses that I can conceptually understand. I'm also a techy, so I felt comfortable investing in that world as well. Knowing that, it's comical looking back at how many pharmaceutical companies I've owned (I think that's probably a rookie lesson in and of itself, the difficulties of that sector), and how badly I've been burned on them. I have no edge there, I'd have been better off buying Pfizer or an ETF.

3) Following the herd - this one's hard not to, right? Substacks, Fintwit, cnbc, everybody is shilling their book to anyone who will listen. Hell, even friends and family will tell you what to invest in. I mentioned in point 2 above, that I have owned a disproportionate amount of biotech for the amount of knowledge I have in that space. My former boss can be blamed for some of that, as he was a former biotech auditor and had grown his account to seven figures trading biotech. When he made a rec, I listened. But either I'm unlucky, or his edge was gone by the time he made his picks, because I lost more than I won, and the winners didn't pay for the losers 🤣

4) SPAC city - my investing almost perfectly begins with the great spac boom. If there was a popular spac you saw on Twitter, chance are I knew it or owned it (or in the case of $FSR, still own it). In fact, my biggest dollar loser is a former spac, which I averaged all the way down from its high of $13 into the $1s before I finally threw my hat in. I'm stubborn though, and have it still on my watchlist to potentially restart my position at a cost basis in the 1s once the wash sale period expires.. Stay tuned!

5) Water the Flowers - building off that last point about averaging down, I have a VERY bad habit of watering my weeds, watering the flowers and raising my cost basis gives me a lot of anxiety, and I actually convinced myself to do it with $PENN, and now I'm underwater in that one. I feel pretty good about a rebound, and I'll be buying more next week, but cutting losers to add to winners is something I need to get better at.

6) Team Neversell - I bought PENN for the first time in 2020 at around $22 bucks per share. It ran all the way to $140, basically in a straight line up. Having no context or experience, I thought this behavior was normal, and instead of locking in a 7x, I'm now holding some Gucci bags for them.

7) Serial Acquirers and Turnaround plays - these are two special situations that require a lot of patience, a lot of research, and extremely competent management teams. Why did I choose to put investing dollars in there, rather than my core competencies? Idk, you'd have to ask 2021 me that question, but it's something I'm trying to recognize and improve on.

8) Buying Options - getting the stock pick right is hard enough; nailing the timing of the move is a different beast altogether, and to make matters worse, I liked to play options on quarterly earnings!! Here I am, a novice investor, trading derivatives on a gut feeling with no experience in the market. What could go wrong?

There are others, and I'll get in to them as I expand on the points above in future posts, but the themes that keep showing up are:
  • Need to get rich quick
  • Not knowing when to hold em and when to fold em
  • Investing in shiny objects without fully understanding
  • Investing without a plan
  • Impatience

The last theme, impatience, has actually been the biggest psychological effect on my portfolio. I have the stomach for volatility, which is great, but I also have the stubbornness to refuse admitting mistakes at time, and the impatience to let a turnaround story play out tells me I shouldn't be investing in them.

Take $PTON for example, a stock I lost some money on in my IRA. They are now a turnaround play, and it could take years to turn around, if they don't run out of cash first. While this type of investment satisfies my craving for volatility and getting rich quick, I have learned that I don't have the patience to hold such a position, at least not at a meaningful enough size that it would generate enough reward to make the risk worth it.

I look forward to exploring my rookie lessons, your rookie lessons, and the psychology behind all of these (as well as how to develop guardrails to prevent repeat mistakes). I'm never gonna bat 1.000; hell, I probably won't bat Ted Williams' .406 either, but if I can be right 3 out of 10 times instead of 2 out of 10 times, I should have enough alpha there to retire someday, and I'll have this journal of all the things I did wrong to share my son, and perhaps give him a head start in this journey.

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