Over the last ten years I have gone back and forth whether to manage my investments on my own or go through a financial adviser. At the start I thought that it couldn’t be that complicated. I figured I was smart enough and it would just take a little of my free time. I was also naïve. There was one huge reason I was not considering, my interest. You will not make the time if you do not have passion.
Finding sound investments take a lot of time. Not a little time. Not some time. It takes a lot of time. There are so many factors that one must consider when looking at mutual funds, individual stocks, real estate, etc.
In one of my most recent attempts to get into investing, I picked up the book which many consider the best starting point for beginning investors. The book is “The Intelligent Investor” by Benjamin Graham. Benjamin Graham was the first true value investor and came up with a stock evaluation formula that is still in use today (albeit in many variations and interpretations). The book is rather thick and I started getting into it. Very shortly in, Graham identified the two different types of investors Enterprising and Defensive Investors. His basic definitions are enterprising investors spend a lot of time and are extremely passionate about investing. Defensive investors are not. Of course he goes into much more detail. After reading his descriptions of these types, I quickly realized I was a defensive investor. I show interest in the subject, but not passion. I have nowhere near enough interest to spend the time necessary to make sound investment decisions. I closed the book and returned it to the library that day.
I can spend all the time in the world kidding myself that I like investing and that I will spend the time necessary to learn the trade. I won’t. In my illustrious investing career I have not had a single investment that I would classify as great. The closest I came was a company called Cyberlux (CYBL). They are a pink slip stock (terrible idea to start with). I had a friend that says, “hey check this North Carolina company out, they make LED lighting systems.” I look into them and say no way. Their stock price was .0033 at the time and there was no good news or info to find on the company. They were in pretty large debt compared to their size and revenue potential. Well at the time I had a little “play” money in a Scottrade account mixed between Napster, Microsoft and a few other tech stocks. It had started at $500 dollars and dwindled to $300. I decided to sell all the other shares and bought $330 dollars’ worth of Cyberlux shares in August of 2006. I now was the proud owner of 100,000+ shares of Cyberlux. In September of that year, they announced a large contract with the National Guard and the shares started climbing. By the end of the day the stock had risen from .0033 to .04. Yes, in one day that $330 dollar investment climbed to just over $4,000 dollars. I called my buddy who was now a financial adviser to share my good fortune. He tells me that if it were him, he would put a stop limit on the stock. I didn’t really understood what that meant and I also thought that there was no turning back now for Cyberlux. They have good products and surely they would keep getting the major federal and state contracts. Needless to say I did not place the stop limit.
By the next week all the gains were gone. It was just some random blip on the radar. Not only that, Cyberlux later reverse split and I now own only 400 or so shares worth nothing.
That whole adventure in itself should have been a clue to me.
So where am I now? What decision did I make for my investments? I put all my money with that buddy that told me to place the stop limit. He is a nice conservative balance to my risky tendencies. To me investing feels so much like gambling. To him, it’s a living.
In 2010, we sold our house in Christiansburg, VA and made about $30,000 off of it. I knew we would need that for the down payment on our next house, but we were not ready to buy yet. I decided to let my buddy invest the money over the summer while we added more to it. In 6 months’ time, we earned $10,000. A lot of that had to do with timing, but it also had to do with where he placed the money. It would have taken me forever to decide what to do with that investment. He had it in the market the day I gave it to him.
The take away from this article is to figure out which type of investor you are. Seriously read Benjamin Graham’s book. It was a great starting point for me because right up front he told me not to read the rest. If you decide to go with a financial adviser, find someone who you get a good feeling from and like what they have to say. Examine their history. Have they been successful? See if you can talk to some of their clients. Don’t give your money to the first one you meet. Meet with several. I got lucky because one of my good friends from high school happens to be an enterprising investor and chose investing as his profession. He’s the yang to my investing yin.
The second part, is don’t give them your money and then forget about it. Keep an eye on it. Know when it moves up and down. Have a general idea which funds it’s invested in. Be active enough to catch if you are getting screwed. But also enjoy the time that you are not spending researching investments.
If you find that you are an enterprising investor, start learning. Read anything and everything you can about investing. Put in the time because it’s necessary and your passion for it will not allow you to let someone else invest your money. Learn from mistakes. Listen to people with experience.
Tell us about some of your investing experiences good or bad.