I am a firm believer in investing for the long term–it makes sense. I’ve been investing for nearly 6 years now with my first foray into the adventure in early 2001, not the greatest time to be getting into the market. I had been watching the markets soar for the last 5 years and listening to the general wisdom that investing was a good way to build wealth, and boy did I want to build wealth. Problem was that although I understood the stock market could be a good avenue for building wealth I did not understand exactly how that happened. So, I enetered into the world of investing with $2,000.00 (I was pretty fortunate in college to have a decent job and a bit of a savings) and opened an account with Ameritrade. I can’t remember exactly why I chose them; but I think at the time I pretty much only knew about E*Trade and Ameritrade. Ameritrade was cheaper so I went with them. After filling out all the forms and mailing them back the signed contract I was ready to go, all I needed to do was decide what to invest in. That was my first problem. I barely knew anything about investing so I simply chose some companies that seemed good. Just like now I was fascinated by technology then so I decided to buy 10 shares of IBM at about $100. To round things off I’d heard good things about Wal-Mart and Home Depot so I bought 10 shares of each of those as well. I can remember checking what the price of each stock was on a daily basis and wondering when a good time to sell was. For the moment I was pretty happy as the value of my shares was going up and things seemed to be going well. After IBM hit $115 I’m not sure why but I figured that was a pretty good price and decided to sell taking my $100.00 and pretty happy. When you think about it, it wasn’t all that bad 10% in about 3 months time! I also decided to sell my shares of Home Depot for about the same price I bought them at. After trading fees I ended up slightly down. And I was now back on the market looking for ways to increase my returns. Mind you I had now idea exactly how that might happen.
After reading a few analyst picks and a bit on the Motely Fool website I’d learned that smart investors were in it for the long haul. At that point my idea of the long haul was about a year. I did some research and saw that many analyst were recommending an Israeli computer security firm, Checkpoint Software. I also saw that they were off there all time highs by about 30%. Seemed like a good time to buy to me, enter in my first great mistake. I bought $1500.00 of Checkpoint at about $50.00 a share. Over the next 2 weeks the price grew to nearly $55.00 a share and I contemplated selling, I decided not to though and that’s when things started getting bad. The next week the share price dropped to $40.00 a share and it kept falling. I held on though telling myself that I was a long term investor and that this was just a temporary set back. I had no reason to believe that Checkpoint should do anything other than lose money for me other than that some analyst had recommended it but I held to my baseless conviction anyway. After a few months of Checkpoint losing money I lost interest and stopped paying attention to the stock market.
This disinterest in the market lasted for about a year and then I heard about mutual funds. I figured that I wasn’t such a great stock picker; but I still believed in the power of the stock market and thought a professional might be able to do a better job of it. So I resolved to find a good mutual fund and invest in it. I understood mutual fnds about as much as I understood stocks. So I figured out how to use a mutual fund screener and looked for a fund that had the best performance in the last 5, 10, and life of fund time periods. What came up was a fund by PIMCO, the Rennaisance fund. It was a load fund that had about a 5% front load. I didn’t know what this meant or that there were different classes of shares but I happily sent an additional $2500.00 into Ameritrade and purchased my shares. Much to my regret things didn’t go so well and at one point my losses in PIMCO totaled around 25%. I again lost interest and stopped paying attention to the market for the rest of my college career.
This brings me up to when I graduated from college and got a real job and started making enough money that I needed to start thinking about retirement and investing. This time I did it right and started reading everything I could get my hands on regarding investing. I learned most of the methods used to value stocks and about how mutual funds worked and the differnet fees associated with them. I learned all about load, no-load funds, and index funds. In short I did what I should have done the first time around. I was ready to start over and try again the right way. I gave up on my Checkpoint investment and sold at nearly a 50% loss (which was the right move as the company’s stock still hasn’t done pretty much nothing). I also sold my shares in PIMCO for about a 28% gain. I then redistributed the monies from the proceeds to several different no-load funds and an S&P 500 index tracker (VFINX).
I feel like I have learned a lot over the last 3 years about how to invest and what really drives the long term price of companies and how the stock market generates wealth. In a way I’m glad I started out the wrong way because it motivated me to learn how to do it the right way. The market has been good to me over the last three years and my annual returns have been in excess of 17% annually. Granted the markets have been good to many in recent years but I am ready for the next bear market.
So that’s my story of how I got interested in investing. When I get more time I’ll try and write in some more detail about the investing lessons I have learned.