My personal story about trading and investment-and what I learned
This is a short story on how I learned trading and what I think people should care for when investing money. This post just represents my opinion and I hope that it is of some use to someone. I am not responsible for anything that results out of actions you take after reading this article (just to be sure ;) ) Would be nice to have a discussion on investment in ETFs and cryptocurrency below!
Money. If you are honest with yourself money is quite important to you, no matter who you are, where you live and where you plan to go with your life. You grow up and hear about money, and the older you get the more you have. At least that is what you think until you realize that...having your money on a bank account lets it shrink due to inflation being greater than the interest you get. That's exactly what I realized when I was 16-17. When I was 17 my uncle gave me a bank account with some money on it as a gift for my A-levels. He explained me some general things about the trading world and gave me the book "The Intelligent Investor" by Benjamin Graham, saying that I should start investing the money he gave me.
The Intelligent Investor
This day was the start of my (ongoing) journey through the rough seas of investment and trading. Now, what tells us Benjamin Graham in his book? At first let me tell you that originally Graham wrote about the US stock and bond market of the 20th century, which is nice but things changed a bit. That's why every of his chapter is being followed by an evaluation of the current situation and how you can implement Graham's advice today. In my opinion there are three main points that are outlined by Graham throughout his book:
Types of Investors
Basically, there are two different kinds of investors out there: the active and the passive investor. The active investor is making many trades. He actively researches about stock prices and the companies behind them and checks his balances on a daily basis. Now the passive investor is, how obvious, the extreme opposite. If you ask him where the stock price currently is he would probably answer something like: I don't care, I don't need to know. Why? Because the passive investor puts his money mostly in funds, holding it there for a very long time (5 years minimum) and thus reduces the risk of loss drastically (Golden rule concerning funds: The more long-term an investment is the smaller is its risk). One strategy of this kind of investor might be: Buying shares for a set amount of X$ every month, not caring if the price rallied up or down.
Investing vs. Speculating
This is the most important thing you need to learn and memorize. Buying something because the troll-box on Poloniex thinks that "the X-altcoin is the real shit and will rise by 20000% today" or selling because the graph on the S&P 500 Index points downwards is called speculating. In case you still haven't realized: Speculating is the kind of trading where you lose money (of course you can be lucky, but with very high risk of losing all your money) and where the money for intelligent investors comes from. Why? Because you act on what others tell you and they often want to actually harm you. Investing means that, after you saw something interesting or heard a rumor, you do proper research. Always ask yourself the following question before you buy: Do you think that the business behind the token/share/whatever you want to buy will do well in the future? If yes, and the research looks positive, too, go buy (Note: What and when you buy is dependable on the kind of investor you chose to be). Again: Every trade based on a weird feeling or a rumor is considered speculating and will lead to losing money.
Control you emotions
Further, Graham wants you to control your emotions. Let me explain what he means on something very stupid that I did during the DAO hack: I was at my internship, having Kraken open and seeing a huge decline in the DAO value, under the initial price of 1ETH=100 tokens. Without thinking that in normal cases the DAO value would never fall below its ICO price my emotions hyped me up: DAO IS CHEAP. LET'S BUT SOME DAO. Before even knowing what was going on kraken executed my order on buying tokens for 5 ETH (yes, thats much for me, I am a student :P). Shortly after I received message from my uncle that the DAO had been hacked. Do you realize? I speculated. I did no research. I got taken over by my emotions after seeing the DAO chart. I ignored everything Graham said and was about to lose money. Fun Fact: I sold the DAO tokens I bought one hour later for 50% more. Extremely lucky... Still I've learned my lesson as I was sweating one hour: DO NOT SPECULATE. Control your emotions!
One year after I read the book (I was too lazy to set up a bank account for stock trading), I did my first investment deciding to be a passive investor: I bought some Comstage MSCI World (that's an ETF) shares. In general: In my opinion, if you begin investing you should have a basis of ETF like the MSCI World (invests in all major companies in the world) or the MSCI Emerging Markets as a long term investment (yes there are sometimes economy crashes, but the world economy, seen over a very long time, yearly rises in its average) as a basis. Why? They are incredibly stable if you hold them for 5 years and longer.
Shortly after this I got introduced to the crypto world by, oh wonders, my uncle. He is actually the biggest crypto fan I know at the moment and the spark set me into flames, too. I got myself an account at kraken and bought some Ethereum, and, after I got convinced that you should always hold the mother of it all, some Bitcoin. Of course I shortly after bought some DAO tokens (you already know what happened to me during the DAO attack) and watched them grow and fall. At first I wanted to be a longterm holder but over the time I got interested in some alt coins like Lisk or most recently NXT and decided to hold them for a very small amount for a relatively short period (well, in the case of NXT until I get my Argor in October). Short period because it is still possible that these relatively small (compared to ETH/BTC) coins have a huge decline in their price and combined with the very small amount I invested (less than 10% of my total crypto-holdings) I still have fun but don't have the risk of losing much money. This brings me to another point that I stick to: Not having more than 10% of your investments in high-risk projects. And well, here I am, having shares of an ETF and some cryptocurrency in my portfolio and writing this article, hoping it will be useful for someone.
In general this is what I learned and what could be very useful for everyone:
1. Decide what type of investor you want to be. This can change over time.
2. Do research. The more you know, the more money you can and will make.
3. Control. Your. Emotions. If you can't, learn it ASAP (Don't worry it took me some time, too, and I still fail sometimes)!
Concerning investment in stocks:
1. Search for a bank where fees for trading are low. This is normally not the average bank around the corner next street. Why is this important? Let's assume you wan to invest 500$ and the fees for your buy order are 20$ (all fix and variable costs summed up). Divide 20 through 500 and you get 0.04 which is 4%. This means that, in order to start making profit, you need to wait until the price is 4% higher than at the time that you bought your shares. Note: This point doesn't apply for the investment in crypto currency as there is a fix fee of around 0.15%
2. Usually longer investments are safer
3.Don't sell ETF shares, like the MSCI world, just because the world economy crashed and the price declined. The economy will most likely come back on its feet again. Better take some money and invest while prices are cheap! Control your emotions!
Concerning investment in cryptocurrency:
1. In cryptocurrency everything happens faster. Make sure to check the charts on a daily basis, even if you are a longterm investor
2. Research is more important and harder! Watch out for the scam websites out there that often promise 5% more or less gain per day.
Happy trading and investing!
Here you can get Benjamin Grahams "The Intelligent Investor": https://www.amazon.de/Intelligent-Investor-Benjamin-Graham/dp/0060555661/ref=sr_1_1?ie=UTF8&qid=1469691723&sr=8-1&keywords=the+intelligent+investor+benjamin+graham
As always: If you don't agree or find some information being incorrect, please tell me. We all do mistakes :)
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