Seeing all bull markets for our next multi-bagger stock!
Seeing historic data to find our next multi-beggar stock
101% in 6 months is high by any standard, especially for a guy like me! I am an average guy especially when it comes to international stocks.
So how did this happen?
When I look back I can think of four reasons that helped me make such a return.
Lesson # 1: I invested the amount I can forget about!
My investment in the US stocks is so small that I almost forgot about it for 1 full year!
I am 100% sure that if I had invested more than I can afford to lose, I would have checked my portfolio every day causing me to close my profitable positions early and realize loss too late.
It was meaningful but a small portion of my overall wealth.
Lesson: Stocks are inherently volatile.
Yes, you can make a quick buck but losses are more profound.
So doesn't matter which stock market you invest your money in, invest the amount you can ride through. Let them breathe.
Let the stock markets go insane.
Let investors think that there is no tomorrow and that whatever they have is BS!
That is your time to get in, invest the amount you are willing to lose and hang in there!
Lesson # 2: Only 5 trades in 1 year - means less is more!
Other than less amount overall, I didn't trade much. I bought what I thought will do well and kept it as it is.
Recall that in the last 12 months, the yield on US’s 10-year bond has gone up from 2.8% to 3.8%.
There was a time when my portfolio was down 25%.
Both of these should have made an average investor sell. But I didn't!
I didn't second-guess my decisions.
Lesson: Less is more.
Stop second-guessing your decisions and keep what you have.
Trading and switching portfolios just because it's not performing or if it's coming down won’t help you. Instead, it will negatively impact your decision-making + I would have paid more commissions.
Lesson # 3: When you know less, a high-level understanding is enough!
What did I know about the US stocks? Nothing!
1-yr back I only knew:
- The market is in panic mode because interest rates are going up
- Tech is being battered because investors feel that COVID valuations are too high and
- Recession fears
But I also knew:
- If a company has a solid business model or already has a mass adoption, investor confidence will come back
- Cycles work everywhere
- Unlike in Pakistan, if there is a trigger in a stock, investors will focus on it
So I took out a few stocks (4 in total) that had strong earnings and have come down due to fears.
I didn't have the exact fundamentals worked out. Like QoQ earnings, revenue growth, and gross margins to the last decimal point.
I was right thematically! And that's all that matters!
As an investor, we just have to be right thematically! Just think about research analysts that had everything worked out for META.
They had a buy call on META with an average target price of 417 when the stock was at 350ish
They still had a buy call on META months after the major fall to 120ish - Target 152
They are as clueless as our local analysts!
Lesson: A high-level understanding is enough when you are investing in a foreign market. Get the theme right and let them run its course.
Lesson # 4: Leverage is a foe - know this early
Usually, when we have smaller capital we try leveraging it so that we can make more money.
Say you have $100 and even if it doubles to $200, it won’t make any difference to you.
So to make this $100 into $1000, we take leverage.
How many people have you seen getting rich through leverage? I haven’t. That is why I stayed away from leverage.
Lesson: Foreign stocks are already alien to us. We have no idea how these markets work. They are more volatile and while sitting in Pakistan we have no hand on its pulse.
So if there is one thing you should stay away from, it is leverage.
Stocks are not a get-rich-quick scheme. Don’t use it that way.
These lessons work in every market!
By no means I am promoting investing in foreign stock markets.
I am writing all this because I believe that all the stock markets work in the same way.
More importantly, mental models (like patience, a high level of understanding, and fewer trades) are more important to make money than stock selection (But there are 4 types of stocks you should absolutely stay away from in Pakistan).
If you are already investing in any foreign markets, keep doing them if you like. But always recall these lessons when doing so!
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