Capital GrowthCapital ReturnFinancial StrategyInvesting

I Lost A Boatload Of Money Today.

Let’s keep it brief, let’s keep it simple. (EDIT: This post didn’t turn out to be brief, or simple.)

I write this blog to keep you updated about my financial life, as well as teach you a few things about the stock market and investing. Well, the aim of this blog post is to do a little bit of both.

I lost a metric ton of money today. For the readers who aren’t caught up with current events or reading this post after everything’s gone down, here’s a little background information before I get into my thoughts and feelings:

Today is February 5th, 2018.

Here are some headlines:

  • Reported outages at T. Rowe Price and robo-advising firms Wealthfront and Betterment, as investors flood the markets.
  • The Dow industrials tumbled more than 1,500 points at one juncture Monday, the worst intraday fall in market history.
  • An exchange-traded security which is supposed to be a bet on calm markets was collapsing after hours.

“The drop by the Dow was bad enough during most of the trading day, but the dive that happened around 2:40 p.m. ET started to resemble the 2010 flash crash at one point,” says one CNBC article.

That same article continues,

“The first thing to know about the stock market’s eye-watering slide Monday is that it wasn’t caused by anything fundamental.

There was no particular piece of news that drove the major averages to capsize, in a move that sent the Dow industrials off more than 1,500 points — a new intraday record — briefly in the final hour of trading.

Instead, the market took on a mind of its own, where sentiment and likely some computer-programmed trading sent Wall Street into a bizarre tizzy. Fear brewed over a number of issues, with the biggest being trepidation about rising interest rates even though government bond yields actually were lower on the day.”

As I’m writing this post, I’m watching the Asian markets for Tuesday morning, and the sell-off is continuing. Yesterday in Asia, the sell-off began, and if it’s continuing, it means that tomorrow morning, on Tuesday, we’ll probably see some more red.

The fact that the financial media publishers are jumping in on this whole “crisis bandwagon”, just serves to make people more nervous. Throughout the day today, I have received push notification after push notification on my iPhone, telling me that the entire financial markets have gone to hell. I think investors are quickly realizing that, “holy crap, this Market has been growing very very quickly.” I think that they have every right to be nervous, and their nervousness is valid, but at the same time these Financial media publishes are simply blowing the issue out of proportion. They’re making a lot more investors a lot more nervous than they originally were. It’s all fun and games until you realize that maybe this Market has been growing TO quickly…

Panic is already starting to set in, which is kind of incredible when you actually think about it,” said Michael Yoshikami, CEO of Destination Wealth Management. “The S&P is trading where it was in sometime in December. So it’s not like we’re retracing an entire 12 months of returns here. I think investors are just understandably nervous. It probably is programmed trading kicking in at this point.”

I think that investors are now trading off of emotion, and that emotion is mainly fear. They are afraid of the unknown, of what is to come. They fear that they are missing their “sell window” before everything goes to absolute shit.

The entire stock market has been trading on emotion for the past few years. This is also fear, the same fear of missing out, but that fear is the fear of missing out on gains. Every single financial influencer and investor will agree that markets that trade on emotion are not good at all. They’re very volatile and can see snowball effects. If one tiny piece of bad news gets out, in this case, there actually was good news, news that the United States added 200,000 more jobs this quarter (which made some worry that we could be in a bubble), then that news can translate into worry. When worry strikes, it’s contagious – it spreads. And then all of a sudden, one person begins to sell, another begins to sell and you have a thousand point droppage in the Dow in one day.

I think this issue was further amplified because investors had the weekend to mull over the fact that Friday saw the first 1% Falls in markets in a very long time. I think that over this weekend investors got worried, hit the sell button on their investing app, and we’re seeing that fallout today.

And as I said, worry is contagious, and it seems that this worry has spread to the futures market. Because the futures market is down, it shows that the majority of investors feel that the Dow will be down tomorrow. That makes it almost certain that we will be seeing a lot more red tomorrow than we did today (or at least a lot more red than common in the past few months)…

In other news, Bitcoin fell below $7,000 to two-month low. I don’t want to say I told you so, well who am I kidding… I told you so.

Before we continue, realize that it is only day one. It’s too early to know if we are in the middle of a 10% correction in the market (or worse). Who knows, by Friday the Dow may be right back up to where it was last Thursday.

Though I haven’t written a full-length post on it, if you know me you’ll know that I feel that the market is in a bubble, and has been since about 2015. This so-called “Trump bump” only serve to enlarge this bubble, and I feel that the rough patch in 2016 was just a natural market correction that was rudely pushed away.

It’s day one of whatever is happening, so I don’t really know if this is a full-on bubble burst, recession, simple, market correction, or just a little hiccup. But what I do know is that I did lose a lot of money today, and looking at the Asian markets as well as Futures, I’ll probably be losing a lot of money tomorrow as well.

My gut feeling is usually correct (as is most people’s). On Friday, I thought that Monday (today) would not be a very good day for investors. My rationale behind this was that investors on Friday were already a little nervous about the jobs report, and give them a full weekend to think it over, you’ll probably see a lot of small investors hitting the sell button over the weekend. Then on Monday, all that selling would happen, and we’ll be seeing a lot of red. Well, my gut feeling was right.

I talked it over with some of my investing buddies, and they felt the same way, but they hope that it’s just a market hiccup, and nothing major. I hope that too, that investors will see that they overreacted to this jobs report, that all this mania and hysteria is for naught. Maybe we’ll see some green before Friday.

But I’ll tell you, I’m a little on edge. I do feel that we are in a major bubble – just look at the Dow. Its been hitting record high, after record high, after record high for the past year-and-a-half. Since 2008, we are back up to pre-recession levels on almost every chart out there, and if you look at historical charts this growth we’ve seen since the recession looks a lot like a bubble.

I’ve been reading a lot of financial books lately, and I’ve got to say, reading The Big Short and the Sale of a Lifetime, two books about Bubbles and recession, really have put my nerves on edge.

But…

I’m in it for the long run, and I invest in things that I feel will give me the most return in 10 years. Sure I might take it out before that, and invest it in real estate or something else, but I invest in the long run, bumps and all. My stock strategy is simple, buy and hold the companies that I feel will go up.

However, during sell-offs, I do feel the need to sell, as I’m sure every investor does, in one way or another. I’m an investor, and any investor does not like looking at red numbers. However, I don’t sell out of fear that I’ll lose all my money. I sell because I want to beat the market. If the markets are going down, and I sell at the top of it, I can sell it when it’s high, and buy when its low – actually profiting off falling markets.

So currently my strategy to combat this hiccup / recession / financial crisis / whatever is going to happen in the next few weeks, is to double down in the stocks that I feel will go up in the long run. Sell off the bloat – currently I’m long in some over-the-counter stocks, which have been greatly affected by all this volatility, and made me lose money – and buy further into my multiple mutual funds which track the market, as well as a mutual fund that attempts to beat the market (as it is an aggressive growth fund).

No, I’m not going to take all my money out into cash and stash it under my mattress, because if I did this every time I was worried about something, I would never make any money. I think and invest for the long run, not just for the next two days. Sure I might lose a little money by buying into mutual funds now, but I do know that they will eventually be back up to where they are now, and I’ll have made a “quick buck” by not overreacting.

Another investing strategy of mine is to not treat my investment account like money, but instead treat it like a game. I have never cashed out of an investment and went on to buy something with it. Really all of the money that I’ve ever earned has been put into the investment account to grow. So to me, money isn’t all that valuable, because I don’t really buy anything with it. Honestly. I’d say that the top three things I buy are stocks, ETFs, and the occasional coffee. That’s it.

So because I don’t associate money with nice shiny objects, I don’t feel that upset or depressed when I see my account losing. I think this is good and bad. First off, I don’t usually sell an emotion. I think Warren Buffett says this (or some investment professional), but they say that when you invest (specifically sell) on emotion, then you’ve already lost. But not selling with emotion, and investing as such also comes with its drawbacks. Yes, I really, really, really do care about the number of dollars in my investment account. But I think if I saw what it could buy, I would care that much more. That means that I wouldn’t be taking as much risk as I’m taking now, which is good and bad. With more risk comes more reward, but vice versa.

For the past year, and it’s raging bull market and I’ve made a lot of money from my investments. But, my investments are all fairly risky, and the mutual funds I’m invested in are specifically for aggressive growth. That means that I get a lot of return, and see a lot of green on good days. But on bad days, I see a lot of red. I’m affected immensely going both up and down in the stock market. I think this is a great strategy when it is a raging bull market, but all good things must come to an end, and when this bull market does come to an end, I’ll need to readjust my investment strategy (Or lose everything).

Advice? Oh you came here for advice? Well first, I think you should realize that I am a 16-year-old and no matter how good my skills are, I’ve never truly experienced a recession as an investor. Realize that I don’t possess the experience that many older people do.

If I were you, (and I’m doing this myself), I wouldn’t get worried. Understand that the stock market is a big game. On some days you may see red and other days you may see green. But also understand that in the long run, you’ll be seeing a lot more green than red. If you sell based off of emotion, it’s more gambling than it is investing. You are simply selling because everybody else is selling, because everybody else is saying “sell”. You may be seeing some red now, but understand that in a few years (maybe even months,) you’ll probably be double where you are now, no matter what happens tomorrow or the next day.

But, as I kind of got to above, I do feel like there are some times where investors should sell. If you’re invested in speculative stocks, like I am in my over-the-counter investments, then maybe you should cash out. But when I say cash out I don’t mean take all your money out of your investment account and stuff it under your mattress. Instead, take the money out of those stocks that you are losing in, and push it into mutual funds or diversified stock Investments, even if they’re sinking. Even if you feel that we may be losing money tomorrow, just put the money into the investments. Remember, you’re investing for the long run, for 10 years, not for tomorrow.

Take comfort in the fact that you are not buying at the extreme high. Understand that if it’s a hiccup in the market and not a massive sell-off, then you just scored yourself a deal. If it does turn out to be a sell-off, you’ll be losing money either way, but you won’t be buying in at the tippy top.

Whatever the case is, I would wait to see what happens tomorrow. My current plan is to sell off my speculative investments in the morning time. I pretty much know that the markets will be going down tomorrow (at least in the morning) because of the Asian markets right now, as well as the futures. However, I’m not going to just cash out and call it a day. I’m going to push half of the cash that I take from selling those over-the-counter stocks and put it into the mutual fund (s). The other half of the cash I’m going to leave in a money market fund. If it does turn out to be a big sell-off, and we lose 10% in the next week, then I’ll be ready to strike with some cash. Remember, buy low and sell high.

So, let’s just hope that this isn’t the end of the financial system as we know it, but it’s just a simple hiccup over the labor report. If the Dow doesn’t crash 20000 points tomorrow, I’ll be back up here posting another blog post on finance, probably relating to bubbles. If it does end up crashing and we go into a world economic crisis, I’ll become a worm farmer over here in Westchester County, New York. If you mention the 25 millionaire blog when visiting my worm farm, I’ll give you a nice discount.

But let’s hope it doesn’t come to that.

Good luck in the markets, and I’ll see you tomorrow,

James.

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