Early in my 20's I was gifted several thousands of dollars by a relative. This was a LOT of money to me at the time and I really wanted to make good use of it.
But, I wasn't that great with money. I had thousands in school loan debt and had just made one of the worst purchases in my life. Needless to say, I wasn't exactly in the right frame of mind to make good decisions with money.
However, one good thing that I did with that money was to invest a part of it in stocks. At the time, online trading was still relatively very new. But, I was encouraged by a co-worker of mine who was doing some trading online himself – and so I thought, “if he can do it, why can't I?”
While he was mainly pushing me into penny-stocks – I decided to pick stocks that I thought might have the potential to grow. After opening an online account with Etrade, several stocks caught my eye. One of them, was a newer stock, called Krispy Kreme.
Years previously, I had spent a winter in California and folks there were going ga-ga over a donut that had perfect glaze and “melted in your mouth.” Being a donut-connoisseur, I had to try one.
And, they were.. great!
What I knew about Krispy Kreme was that people loved them, and they were opening shop after shop on the West coast.
So when I saw they were being publicly traded, I had to buy some shares.
My observation of human behavior and decision to make that trade ended up being a good one. At the time, stocks were tanking as a result of 9/11 and other market conditions – but Krispy Kreme kept growing and the share price skyrocketed.
You only invest in stocks?
I ended up selling my shares of Krispy Kreme years later after greed began to take hold of the company. They were growing too fast, losing quality and (more importantly) losing demand. I knew this wasn't a good sign.
I made money while I held the stock – but shortly after I stopped doing any more online trading. And years later when I had more steady employment, I opted for the traditional 401k and other managed funds.
The other day I had a conversation with a good friend who's done well for himself financially. I asked him about his investments and was surprised to learn that he only invests in stocks. He does it himself – through an online broker.
No mutual funds or financial adviser – just himself.
He talked about how trading prices are quite low – and if you subscribe to a “buy and hold” strategy of investing (which many succesful investors, do), you can do away with all those other fees you are paying with managed funds.
He is right. Why do I (we) continually pay for fees on top of fees for a mutual fund / 401k – when I'm taking on all the risk?
Jane Barrett, CEO of GoldBean, says that between 1976 and 2006, mutual funds (professionally managed funds) only beat the market 1% of the time after fees. That's crazy!
So, why does everyone put their money in this stuff?
My guess: a perceived sense of safety.
I may be getting back into online trading
Granted, on the risk spectrum – investing in stocks / mutual funds is higher up there. You could lose it all. But, we've seen that – over time – stocks tend to go up and is a fairly good place to help your money grow.
I really think that purchasing stocks is a matter of observing people's behavior. What are folks buying – what do people need/use? What has a good potential for growth? I mean, any of us can do this, right?
Since I'm already paying $15-20+ in fees every month in my 401k, I might as well pick up some stocks here or there – and avoid the monthly fees altogether, as my friend is doing. Why pay someone else to do something I can do?
I'd be interested to hear if you buy your own stocks, invest in index funds or use other investment vehicles that don't tack on as much goofy fees?
It all works great… until it doesn’t.
Beware of confirmation bias. The people who got themselves fleeced aren’t rushing to comment on the efficacy of this approach.
Very good advice, Aaron. While managing your own portfolio isn’t for everyone, I think that most people could do it and increase their return. I’ve learned (the hard way) that the portfolio shouldn’t be too heavy in a particular stock or industry, but as broad and diverse as possible.
Excellent point Dave – thanks for bringing this up!
Interesting story! Smart move on your part. I’m waiting for the market to tank so I can buy up. :-)
We self-direct all of our investment accounts. We own bonds and dividend paying stocks along with only 1 or 2 municipal bond funds. We invested our son’s college account in mutuals and it worked out fine but that was quite a while ago and since then we’ve done things on our own. No broker, no advisor, completely on our own. We don’t like index funds because with one or two winners you get a lot of loser as well. Our strategy is definitely buy and hold, sometimes for years, and even if the market goes down, those dividends just keep right on rolling into our account. I have to say that my husband and I love the research and process it takes to accomplish this and he has proven to almost have a golden touch when picking stocks. We’ve been very fortunate how it has worked for us.
Awesome Kathy! Cool to hear others using this same approach.
Would love to step into doing more of this. I have had some success (and failure), but would love anyone’s input on books/articles/websites, etc. recommendations they have had success with in finding companies to buy. AND also just as important, when to sell! :)
Hey Bjorn. I was greatly helped by The Millionaire Teacher by Andrew Hallam – he talks about how he amassed a millionaire dollars through buying stocks / savings on his teachers salary.