The Why of Investing | How I Decide What to Trade and When

in LeoFinance •  6 months ago 

The Why of Investing | How I Decide What to Trade and When.png

This is something that I’ve thought a lot about over the years. Whether I’m buying a particular stock, investing in crypto or what have you, I always wonder about the “why”.

Investing is such a fascinating field to be a part of and even to study from afar. There is an incredibly diverse set of characters who practice all sorts of investing.

You have your Buffetts of the world who practice value investing. Your hedge funders. Macro trend traders. Even high-frequency quant funds.

With all of these different ways to invest, we all must eventually come to a cross roads where we need to decide what kind of investor we are.

  • Are we the type of investor who buys a value stock and collects a low-yield but highly reliable and growing dividend over the next 20 years?
  • Are we the investor who tries to identify the "next Amazon”?
  • Are we the investor who buys a basket of cryptos and waits for a financial revolution?
  • Are we the investor who day-trades a variety of stocks based on x, y or z variables?

Granted, there are a lot of nuances available here. You may be in 1 category and not another or you may dip your toes in a couple of the categories or even move from 1 category to another as you make your way through your investment career.

Investing Emotionally

I like to joke (half jokingly) about investing emotionally. This is how I identify myself as an investor. I read about things and I like to get as hands-on with what I'm learning about as possible. There are technologies that excite me and there are others that bore me.

In a few of my past posts, I’ve mentioned some of my largest investments:

  • Tesla
  • Square
  • Bitcoin
  • Ethereum
  • Hive
  • BAT
  • A basket of dividend growth stocks

The majority of my capital is distributed across these investments and I’ve put countless hours of reading, thinking and understanding into each of those positions.

When I say countless hours, I don’t mean countless hours of studying the price. In fact, I find that I have a great degree of price insensitivity - the current price is mostly irrelevant to me.

When @rollandthomas was asking me how I decide to enter a position in TSLA or any of the other investments I’ve made, my answer was simple: “because I felt it was cheap at the time.”

I don’t really use any indicators and the only chart I will really even look at is one that shows the price over the past 12 months. The reason why I’m buying the stock usually has little to do with the price. The price is more so an indication of when to buy a stock, not why I’m buying it.

This point, in my opinion, is one that separates an investor and a trader. Many traders will enter a position because they have found an indication of future price. Something that leads them to believe that the price will move in one direction or another in the near-term.

When I enter a stock, I am aware of its price today relative to the past week, month, 12 months. When I call something “cheap” and decide to buy it, it usually just means that I feel it’s at a relatively low enough price to warrant buying it for the long-term. There is no "right" approach in the trader vs. investor debate. Only the "right approach for you".

In the roundtable, we used TSLA as an example. For me, TSLA is expensive as hell at its current price of ~$950. I bought most of my TSLA years ago and my average cost is well below $400/shr.

My reaction to the latest price action on TSLA was to sell some of my shares (not a majority of the shares, but a small portion) to take profits off the table and build a stronger cash position in this market that seems entirely irrational to me.

When I think something is expensive, I sell it.

When I think something is cheap, I buy it.

On the surface, that is what’s happening in my mind when I pull the trigger on a buy or sell. Beneath the surface, I spend much of my day-to-day reading about these companies/technologies and doing my best to understand them and the potential impact they have on the world.

I have been obsessed with Tesla (and Elon Musk, I earn the title that @nealmcspadden has given me: Elon fanboy) since I was a kid.

I was around 13 or so years old when I first started thinking about Tesla and its impact on the world. At the time, only the Roadster was out and the company had recently filed their IPO.

Since then, I’ve closely followed Elon’s projects and the Tesla company. Watching what he does and thinking to myself “this is so obvious”.

While many analysts hated on Tesla (and still do), I have had an unwavering belief in its success as a business and leader of innovation. Buying TSLA always was (and always will be) an emotional endeavor for me.

The same goes with Bitcoin. It’s obvious to me. The fundamentals of why Bitcoin exists today and why I believe more people will use it tomorrow are sound (in my opinion) and cause me to have an unwavering belief about the future price of BTC.

My Why

I titled this “The Why of Investing” and just started writing. This post may seem “ranty” and unorganized (because it is) but it has led us to these primary points about what I invest in and why I do what I do:

I invest in things that I understand and have a fundamental belief in. I invest in companies and technologies where the outcome seems obvious to me. I don’t dwell much on the price, because I’m relatively insensitive to where something is trading at the moment. I let the price guide the timing of my entrance/exit to some degree, but the focus is on the 5-20 year outlook of whatever I’m buying.

When I call something “cheap”, it means that I believe the stock or crypto is relatively undervalued compared to the past year of price history coincided with what I believe the future value might be.

To me, the outcomes are obvious but the timing is not.

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The world of traders is very complicated and it takes a lot of patience. One day I still want to try to dive more appropriately into it.

I agree, it's a complex thing to navigate and takes a lot of patience up front. I'm much more of a long-term investor but dabble in trading here and ther

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I use trading basics to get into my crypto investing positions, normally what I do is spotting big long-term supports and buying there, I bought VeChain near the bottom, BTC at 4k before it exploded, and ETH at $180, long-term bags (5-20 years). This only works if we are at the end of a bear market tbh, because in a bull market the price just shoots up non-stop and I have no idea when to get in... in a bull market I just DCA into crypto every 20-25 of the month, for some reason cryptos get cheaper by the end of the month (from my experience). Still need more experience with stocks to get a good understanding of when to invest tbh...

That TSLA stock is at crazy levels right now, I have no idea what to even think about it! Every time I think it's overvalued AF, it does another leg up... I understand the Elon hype, and Tesla has a lot of IP, but still, the biggest car company in the world when it comes to marketcap? Higher than Toyota?! Makes no sense imo...

That's a good strategy. Thanks to the LEO Roundtable podcasts, I've been getting more and more entrenched in some technical indicators/support and resistance levels.

The quadrant method that @rollandthomas showed me is also a nice and simple way to determine if something is relatively cheap or expensive, so I've been keeping an eye on that as well. You have a good track record of getting in at good prices, so keep doing what you've been doing.

The thing about long-term holds that I love is that you can't really go wrong... even if you buy TSLA at $1k right now, if you buy into the vision of Tesla over the next decade, you're still likely to make a return even though you're buying at the current top. Technology is funny that way

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I haven't done much if any investing. The closest I came when I had an IRA in my corporate job. I lost that a long time ago. If I were investing right now I would most probably look at lower risk investments.

Yeah low-risk investments are great as well. I spend most of my time and money on the techy/risk-on investments, but I balance it by keeping a healthy portfolio on the side with very safe income-producing bets for the long-term.

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#posh

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Because I'm an engineer by education, I have a qualitative mentality. The upside is that I can create rules around my trading and hand it off to someone that wants to mimic my trading style. Although Buffett is a value investors, I'm sure he has a means to value a company currently and longer term. I will agree, there is some art to trading/investing that can't be explained / documented, but I think the way you invest/trade we were able to put some rules around the way you buy / sell on the last Leo Podcast...at least for me that gave me some insight to how you think about trading/investing.

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Invest in catnip, it's going places!

Not financial advice, just my opinion!

I used to be a fund guy and a really unaware one at that. I just bought some stuff because everything was going up in 2012. I sold in 2018 and was happy with it and for the same reason. saw a massive upside and in 2018 it felt overvalued. The stock market still does feel overbought and in these times I would not touch stocks with a 10 foot pole. Bonds are yielding nothing so Crypto is where the upside is and I believe in what it represents so... I am stacking sats (and other crypto)

I am listening closely to realvision though. They bring a lot of interesting info and I am learning for later and for potential future invesments

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It's all about your goals. I have a long term growth account, dividend account and a spec account. I'll trade options within these accounts based on the risk and time frame. For quick trades I'll use TA.