A few years ago I visited the Old Town School of Folk Music for a Meshell Ndegeocello concert. It was a crisp fall night and the breeze was subtle, so we ventured for a walk after the show to find a quick, cheap bite to eat.

We met her, accidentally, in the street. Wool hat, plaid shirt, army-colored boots. There wasn’t a crowd around her or even any bodyguards. She must’ve wanted the same thing we did: a little fresh air and some food.

We hadn’t spoken a word for most of her show. We watched the performance in stunned silence: mesmerized, captivated. We giggled for a second nervously, debating whether to ask for a picture. I could’ve touched her arm!

Passersby who’d observed the exchange whispered to each other with confused faces, “who is she?”

What?! The struggle.

You don’t know what you don’t know, and what you don’t know matters.

This week was a mixed bag. I did more research on investing and started making lists of unfamiliar terms.

Whenever I encounter a problem that needs a solution, I do one of three things:

  1. I organize the parts that make sense, the pieces I can control. Usually this looks like a list, a chart, a spreadsheet, or a new filing system.
  2. I evaluate what’s working well via research, data, statistics, conversations with experts, anecdotal info, etc.
  3. I organize the parts that don’t make sense (the parts I can’t control). These two aren’t necessarily the same thing. Then I figure out a) who or what controls those parts, and b) whether those parties, factions, or structures can be moved.

I started by making a list of the terms I need to research:

  • asset classes
  • dollar cost averaging
  • Class C and Class A stocks
  • P-ratios
  • short/shorting
  • short sell
  • gross margin
  • penny stocks
  • blue chip stock
  • SEC filings

Then I created a list of questions:

  • If you own shares of a company that offers dividends, but then you sell your shares of that stock, will you still receive dividends for the period when you owned the stock?
  • Where can you find a company’s income statements and balance sheets?
  • What’s the best strategy for selling your shares of a stock, i.e. when is it most advantageous?
  • Do you need special knowledge to become a day trader? Can you day trade on Robinhood, or is it best to go through a brokerage firm?
  • Best case scenario, what’s a realistic amount that an inexperienced investor can potentially earn in their first year of investing?

Then I summarized the tips from the resources I’ve been reviewing:

  • Diversify your investment portfolio to minimize potential losses
  • Decide what kind of investor you want to be. A day trader? Someone who puts money in and just leaves it there? A penny stock trader?
  • Invest less than two-thirds of your funds in your brokerage account. Leave one-third in case your stock falls.
  • Read the quarterly reports, annual reports, investor relations page, etc. for the stocks you invest in (or plan to invest in).
  • Set a fixed amount that you plan to invest each quarter or each year.
  • Read The Intelligent Investor by Benjamin Graham
  • Research/study best practices of prominent investors
  • To diversify your portfolio, plan to invest in no more than 5-7 stocks TOTAL (as a beginner)
  • Decide what your investing goals are. Pay off debt? Earn additional income? Save for retirement?

The week has been kind. In early May I invested $50 into my Robinhood account and purchased two shares of Ford stock. Last week, I put in $200 more and bought one share of Netflix stock. I plan to keep them for the long haul. In the meantime, I’ll continue to research best practices.

The month has been up and down but as of today with my three shares (2 Ford, 1 Netflix), I’m up $3.15. SUCCESS!

What tips would you recommend for a brand new investor?
Have you ever 
missed an opportunity because you didn’t know what you didn’t know? 

 

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5 thoughts on “Day 2, Week 25: You Don’t Know What You Don’t Know

  1. Here are the list of terms and their definitions.

    asset classes: a group of securities, ownership of stock/bonds/alternative investments , with similar characteristics

    dollar cost averaging: is a practice where an investor invest a fix amount of money over a long period of time. This is to gain a ‘average’ percent increase over time and to reduce risk.

    Class C stocks: type of mutual fund, a collection of stocks, with a level load, investor fee for managing mutual fund.

    Class A stocks: classification of common stocks, stocks that are publicly traded on the stock market, that have a higher number of voting power. Usually given to higher executives within the company.

    P-ratios: is the price to earnings ratio, and this tells you how much you are paying for a company’s earning power. Higher P/E means higher growth for the money you are paying but these stocks tend to be riskier. While lower P/E tends to means a steady value stock that might grow during the long run.

    short sell: it’s a practice that you ‘borrow’ a number of stock from a broker with the hopes that the stock will decline and sell back to the broker at a lower price for a profit. An example is John borrows 10 shares from Alex. John is now ‘short’ 10 stocks that he owes Alex and his hope is when he has to give back the stock, the stock has declined. Then he doesn’t have to pay as much and profits from the ‘borrow’.

    short/shorting: see short sell

    gross margin: total sales revenue minus its cost of goods sold (COGS), divided by total sales revenue, and it’s use to get a rough estimate of how profitable the company’s operations are.
    penny stocks: stocks that trade below $5 a share

    blue chip stock: a name for stocks from companies that have a good reputation and not as volatile as other stocks. Tends to have a increasing upwards trend and usually reliable during good/bad times. Think of Google, Wal-Mart, and Coke

    SEC filings: are financial statements/other documents send to the U.S. Securities and Exchange Commission that is required by all publicly traded companies in the US

  2. Here are my answers to your questions, hope this helps!

    If you own shares of a company that offers dividends, but then you sell your shares of that stock, will you still receive dividends for the period when you owned the stock?

    No, once you sell the stock, you forfeited any dividends you would’ve earned. When you sell a stock, you are giving up an rights you had with the security. Think of it like this, you lived in a house(stock), and it had a pool(dividends) that you enjoy. However, you decide to sell the house(stock) and by default, the pool(dividends) as well.

    Where can you find a company’s income statements and balance sheets?

    You can go to many places but to make it easier for you. You can go to http://www.marketwatch.com which is a great in-depth financial website that gives you a lot of information on the market. First, go to the search bar and search for your company by name or stock ticker code. Next, click on Financials to get the annual report on the company, and you can click on SEC filings to see what documents they send to the SEC.
    Here’s Ford’s (F) income statements/balance sheets information: http://www.marketwatch.com/investing/Stock/f/financials

    What’s the best strategy for selling your shares of a stock, i.e. when is it most advantageous?

    I hate to do this but I need to answer your question with another question, What type of trader do you want to be? (day trader, swing trader, growth vs. value trader, etc?) Also, what is your ultimate goal from trading? (Retirement, Education, Get rich quick?)

    Do you need special knowledge to become a day trader? Can you day trade on Robinhood, or is it best to go through a brokerage firm?

    Yes, you do need to know the rules of day trading because if you don’t follow the five-day rule. Then your account will be flagged as an active trader account, and you’ll need a minimum of $25,000 to day trade. However, if you decide to trade on the FOREX, currencies exchange market, or Options, contract of a sell/purchase of an asset for a set price during a period of time, then day trader rules don’t apply. However, the amount of return in FOREX/Options will vary and can be difficult for a beginner. I recommend more study if you’ll like to day trade in those markets. If you decide to day trade, you can day trade on Robinhood, however, once you gain confidence and have a system, it’ll be best to move to a different online brokerage account as you’ll have much faster speed to execute trades. Here’s a good Youtuber to watch https://www.youtube.com/user/agasd67654asdga?&ab_channel=RobinhoodPortfolio. NEVER use a full service brokerage account because their fees will eat at your earnings, and they’ll usually try to push stocks that might not be in your best interest.

    Best case scenario, what’s a realistic amount that an inexperienced investor can potentially earn in their first year of investing?

    If all goes well, if you could make a gain an annual gain of 10% or more, then that would be great success. Since the market makes a ‘historical’ annual gain of 7%, then you would’ve essentially beaten the market by 3% which would be great for a beginner.

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