The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: frugaldrummer on August 03, 2020, 09:38:29 PM
-
Recently I did something unusual for me - I put $10k ( only 2% of my total investments) into a speculative stock, based on some specialized knowledge I have about its product. (NOT insider knowledge, just a field I know something about). I didn’t invest more than I could afford to lose, and so far, it has almost doubled in price in a short time. Since I never really do this though, I’ll admit I didn’t have a firm end in mind. My general plan is to sell half to recoup my original investment, and let the remaining $10k ride unless I see a reason to lose confidence in their product. If it’s successful, that remaining $10k might increase up to ten fold; if it fails, I could lose all $10k but would be no worse off than when I started because I’ve recouped the original investment and didn’t tie it up for very long (about 4-6 weeks).
Does this seem like a reasonable way to think about it? I knew it was a risky investment when I made it, and am willing to cut my potential long term gains in half in exchange for recovering my initial investment. Give me your viewpoints .
-
Generally asking random strangers on the internet for validation of your investment scheme is a poor one. That said, if you keep your “Try and beat the index” sandbox to a small portion of your portfolio, then have fun and enjoy the ride.
-
It is gambling. And you accepted the risks.
"Take the bet from the table and let the rest figure it out." is as okay as any other gambling strategy.
I did the same with Wirecard (my bet was only 100€...). The important thing is that you don't believe that you are some investment genie, who could win this bet again and again.
-
No I certainly don’t intend to make a habit of it.
-
If you have that itch to try and beat the market, you could do something similar to what I have done: Take a small amount of money and put it in a low or no cost brokerage and only "play" with that money.
I did this 2 years ago with $2,500 and it has grown to $33,000. I have a thread about it on this forum but it doesn't get a lot of traction....mostly people are adverse to this type of thing even with the small starting amount and containment of the activity.
-
If you have that itch to try and beat the market, you could do something similar to what I have done: Take a small amount of money and put it in a low or no cost brokerage and only "play" with that money.
I did this 2 years ago with $2,500 and it has grown to $33,000. I have a thread about it on this forum but it doesn't get a lot of traction....mostly people are adverse to this type of thing even with the small starting amount and containment of the activity.
True.
I also enjoy to play the Buffet's game with 10% of my portfolio :)
-
Most folks I know that trade individual stocks frequently have some type of personal investment strategy, such as:
If value increases XX% I sell and take the winnings.
If value decreases XX% I sell and cut my losses.
They keep emotion out of it and stick to a strategy.
-
Most folks I know that trade individual stocks frequently have some type of personal investment strategy, such as:
If value increases XX% I sell and take the winnings.
If value decreases XX% I sell and cut my losses.
They keep emotion out of it and stick to a strategy.
I think applying a rule set like that is why so many of them fail.
I sell when the potential profit is not enough to offset the risk of holding.
To me it does not make sense to sell a stock just because it falls in price below a certain point without looking at the reasons behind the drop and the risk/reward ratio.
-
Most folks I know that trade individual stocks frequently have some type of personal investment strategy, such as:
If value increases XX% I sell and take the winnings.
If value decreases XX% I sell and cut my losses.
They keep emotion out of it and stick to a strategy.
I think applying a rule set like that is why so many of them fail.
I sell when the potential profit is not enough to offset the risk of holding.
To me it does not make sense to sell a stock just because it falls in price below a certain point without looking at the reasons behind the drop and the risk/reward ratio.
The best rule is: If you are a value investor and you estimate the intrinsic value of the share, than when stock is above 10%-30% your valuation, sell (mark profits), if down then buy :)
Of course re-asses the intrinsic value frequently based on important changes, e.g. interest rates, company's quarterly earnings etc.
-
Does this seem like a reasonable way to think about it? I knew it was a risky investment when I made it, and am willing to cut my potential long term gains in half in exchange for recovering my initial investment. Give me your viewpoints .
I think very reasonable. You invested a small amount in a smart way - using your personal knowledge to create a good return.
But the other way to "play it" - assuming you think the stock still has potential - is to set a stop loss order, good until cancelled, above your original investment price. Let's say you bought at $10 and it is now $20. Why not keep it all in there to potentially further increase your gains, but set a stop loss at $12. Then you still make 20% or so and get your original money back if it falls quickly. On the flip side, if it goes to $30, then you've got a higher return and you could then increase you stop loss as it rises more, say to $15 or $20. Just a thought on an alternative method to protect your gain and possibly increase future returns.
-
@frugaldrummer - Why is this investment overvalued? Why sell?
If it's not overvalued, you might be treating your purchase price as overly significant.
https://www.investopedia.com/terms/a/anchoring.asp
-
What is the stock you bought?
-
Mostly PTF.
To earn my keep - OP, it sounds reasonable, but are you in an income bracket that pays tax on capital gains? If so, the amount you sell will be taxed. You might sell a little extra to cover the tax.