In The Not-So Distant Future...

... I travel through time to tell everyone what it takes to be a successful investor and trader.

As if that happened in that way.  But, really, I did travel through time.

What I noticed, what I saw, you would not believe me.  For in this future world, I saw people in lavish dwellings.  Not hotel-like dwellings, but the more refined and regal kind.  It appealed to mine own eyes as though I lived in that time period.  Well, I am living in the period leading up to it.  Therefore, the inevitable will be that I shall live through it, too!

Back to my focus on this journal entry.

As I was travelling back through time in the stock market, I had noticed how some companies upgraded their stocks, and some downgraded, based on their trends and activities.  Then, I noticed something uncanny, unusual.  My friend, my best friend from grade school had just started making some trades for his new bike.  It may not seem unusual to you, but it most certainly did for me!

As I observed his trades over the weekend, those same trades he had put a "buy" position for made for an untimely loss.  So I snuck myself into his account and fixed up the situation.  First I needed to diagnose the issue at hand.  Then I needed to find the correct ways to fix, cut losses, and make some gains for his account.

Thus I created, by accident, a sequence that can take precedence over a huge financial loss over time.

Here is what it looked like:

- Check company's relationship with the shareholders - NEGATIVE OUTCOME
- Check that most or all of his trade positions are on either "buy", "hold" or "sell" - EASY ENOUGH!
- Sell all 100% of trades by "closing" them - CUT LOSSES
- Redistribute to more variety so as to not accumulate losses

After I was finished, I heard my friend come through.  I look around the wall at him.  He looks at me.

"What are you doing at my computer?" He asked.

To this, my response was, "Oh, just making sure nobody takes it away."

To which he replied, "Riiiiiiiggggghhhhhttt."

Then we got back to our usual conversation after about 2 minutes of awkward silence.

A few days after the fact, he comes up to me and says, "You have been fiddling around with my account, haven't you?"

"No, I haven't" I replied.  "Why?"

"Well," he said. "you could have just told me you were fiddling around with my trading account while on MY computer."

"Geez," I said, uncomfortable of what might happen next.  "I really do apologize for messing around your computer then."

"It's no big deal, really," said he.  "Besides, you fixed my financial dilemma for a period."

"Would you like to go to the nearest coffeeshop, dude?" I ask.

"Sure!"  He responds. "That would lighten up my spirits.  I had a really crappy week and weekend."

A Rich Story

            As my parents have told me, always choose wisely and without emotional influence.  But, I just went on my way, ambitious and wildly happy of being a potentially successful investor, allowing my emotions to take free reign and influence my every investment move.  Then I realized too late that I was trapped in a simple, but hard to get out of, problem: the stock market crash back in 2007/2008.

            By the time that happened, I was panicking and selling all of my shares as fast as I could, thinking that, in selling them, I would be able to cut my losses before they went any further.  Each time I tried to cut my losses and liquidate some of the money, the further away I got from achieving my short-term goal: to get out of the market mayhem before I, too, was affected. 

            Low and behold, I was affected: some stocks went up and then ended in the dumps, other rose quickly before plummeting twice as fast.  And then, the good news came: I still had enough money to invest after all.  It wasn’t much, but I was still able to slowly but surely bring my investment portfolios back to their original balance, plus some.

Here are a few steps I took to getting there:

1.     Find work

2.     Set aside money for the stock market

3.     Rearrange my already-existent portfolios

4.     Trade using the market trends (less risky than trading on the fly)

            When I first heard from my parents: go and find yourself a job if you want to get involved in the investment market, I was very annoyed.  I had thought, “But, I really want to get involved in the market.”   It was very annoying, indeed.  But, I took their word for it, because I was a few dollars short.  So, I searched and searched and searched, inevitably with no success in the short run.  But, then I had an epiphany: why don’t I just go volunteer myself at one of the places where they pay their staff well so that, eventually I can get work there by the time they see that I am a reputable volunteer in their employment.  That worked, but it took time.   By the time the money started to flow in, I set 50% of my pay aside to go towards my investing opportunities and the other 50% for gas, hang outs, and the occasional DVD rental.  That worked. 

            I eventually saved over one thousand dollars in the savings account, plus interest.  By then, I was ready to re-enter into the stock market and invest.  But, in order for me to be a successful investor, I needed some guidance, which I found through a couple investment magazines.  One is called MoneySense and the other is called Canadian Business.  I also got some really intriguing information from the Globe and Mail – Report on Business section on how to increase my cash pile.

            As I was leafing through MoneySense, I found where I could find the advice on how to invest my $1000+ cash pile.  Here is what I found out.  In the short amount of time that I read through the “Where to invest $1000 now” article, I found that the safest and most effective steps, once I got my $1000 or more of a cash pile, to:

1.     Stash the $1000 into a savings account to accrue in interest over the month on top of every amount I put towards the savings account.

2.     Designate the savings account also as a traffic source for money to flow out into my two investment portfolios (one to keep me out of debt and the other as a retirement nest egg).

3.     Consult with my HR department at work to figure out whether they have group RRSPs or just privatized company shares (shares available to the employees and employers only). 

4.     Diversify my Investment portfolio to not be just in stocks, but also in commodities, indices, ITFs (internationally-traded funds), and TFSAs (tax-free savings account, with or without a guaranteed investment certificate). 

5.     Do not get locked in with a mutual fund account until I find one that is right for me.

6.     Keep investment fees in perspective.  This is not related to mutual funds, where you can make a PPP of $25 minimum, depending on your bank.  Back to investment fees: they can be higher or lower than your budget allows, so you can always make up your mind to go with the one with medium fees.  Having said that, one should not just be attracted by the low fees but also by the package that the investment group promotes to me.   That way I can get the most while paying them very little in fees.

7.     Always be mindful of your income tax when deciding whether to go with a TFSA or a RRSP.  One is exempt from income taxes while the other isn’t.  While it isn’t always a good idea to stay away from being taxed, I made sure I had more money going into my TFSA than into my RRSP.  That way, I did not need to file my income tax report to the Canadian Revenue Agency.  I hate doing taxes.  But I love making money off of other companies.

            With the other magazine, here is where I got more creative with my investments.  By the time I got a hold of the Canadian Business magazine, I looked right away for their list of best stocks for growth, dividends, turnarounds, and value.  Here is what I got out of it.  It was great fun at the time, but then I had to do my research on which companies performed better in the end.

            First off, there is the price-earnings growth (PEG) ratio. If the price is higher than the earnings, I was likely to lose more than I would be hoping to earn.  So, I went for the ones that not only had a price-earnings ratio of below 1, but also had high returns on their investment, including rewards, such as dividends and buybacks, which I had recently found in combination in a number of companies mentioned in the Globe & Mail.  It was rather new to me and helpful to better check and do homework on companies on a year-to-year basis or looking at past PEGs ratios to figure whether the company has been consistent on returns or not.

            Having said all those interesting areas in the stock market, I still got rich and now just rely on my TD Everyday Savings account without worry.  After all, it gives me an interest of $1000 and more, increasing my cash pile from the time I had withdrew from the stock market. 

            Now you can do it.  You can be one of the 1% too without being in business.  I had retired early, in fact, because I no longer required a job to keep me going.  I just let my bank do the work with the monthly compounding interest accrued to date.  Always find the end game before you begin.  That is the wisest line I had ever heard in my life.