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What I’ve learned from 5 years of buying and selling stocks

trading stocks

From a young age, I’ve always had an interest in making money and business.

But it took me a while to take the dive into learning how to buy and sell stocks.

My first small business was selling Coca-Cola to my friends at school as a 13 year old.  My next business success was the summer after my GCSE exams (UK countrywide exams taken at 16). Having used Amazon and eBay after I first opened my own bank account to stash my cash and get a card I could use to buy things online, I started to think about selling online. Because I could sell products for more online, selling one item on Amazon was equivalent to selling 100 cans of Coca-Cola.

So towards the end of my exams, I bought an iPod nano on eBay, listed it on Amazon for twice the price and waited. To my surprise, the day after I won the auction on eBay, I got an email from Amazon saying my new purchase had already sold.

This was the beginning of my first serious business.

I began to sell anything and everything related to tech… laptops, iPods, PlayStation controllers, headphones, speakers and other items. After 2 months of selling on Amazon that summer, I turned my initial £25 investment in that iPod into £3000 by the end of summer.

After school, I tried to start a similar business but selling on own website rather than platforms like Amazon and eBay. This turned out to be a total failure as I didn’t know enough about websites, getting traffic, SEO and converting visitors into customers.

At this point, I was 18 years old and had around £5,000 in my savings account made from my small businesses and money I had saved from working summer jobs. I knew that my parents bought and invested in the stock market, so I decided to look into how I could make my savings grow faster than the meager 1-2% (now even lower) that I got in an Instant savings account (ISA).

This brought me learning how to buy and sell stocks.

The main reason I started investing in the stock market was because I couldn’t find a way to make money with getting a bar job or part time which I both didn’t enjoy and didn’t feel happy with the amount of money I earned for my time. When it’s possible to make hundreds of pounds for a few minutes work, it becomes hard to want to work an hour in a pub hating the job for £6.50! I struggled to start a new business and just couldn’t think of any profitable ideas that I would both enjoy, make money from and learn from in the process. Buying and selling stocks seemed to me to be the only option to a fulfilling, money making activity.

I had no real idea what I was doing except the basic concept: like I did with the iPod – buy for a low price and sell for a high price.

I talked with my dad who, as usual, recommended that he invest on my behalf and help me learn about stocks. But being quite independent with my own money and how I used it, I decided to open my own account. I put around £2000 into my account (I used and still use to this day, tddirectinvesting.co.uk which allows you to trade stocks online and over the phone).

Once my account was open and funded with my cash, it was time to choose my first stock.

Choosing my first stock was fairly simple.

As I said, I had no real idea what I should be looking for. I thought… buy low and sell at a profit. I decided to search the FTSE100 (a list of the London Stock Exchange top 100 companies) for companies that were low in their price range for the year but also had a little bit of volatility. By volatility, I was looking for a stock that’s price fluctuated significantly over the course of a day or a week.

I thought about a few companies I had heard of but settled almost randomly for Fresnillo plc, a Mexican silver mining company that, at the time, was at a year low and in fact it’s lowest price in a few years. It bounced around by 5% some days and seemed like a good stock to go in and out of. Making 5 or 10% in a short period of a few days, a week or up to a month would work out to about £150-300 every time I traded or bought and sold the stock. For a few months, it went from around £7.50 up to £8 and back down. I thought of it as a trend or a cycle, which fitted my purposes and strategy, it was. I bought and sold Fresnillo around 4 or 5 times, making a few hundred pounds every time. Then the stock started to get more expensive but the trend would re-emerge again at a higher price – say from £8.50 to £9.50. I would buy and sell hoping I didn’t sell too early as it could go even higher or not sell at all and see the price drop back to what I paid for it. Gradually the stock rose to £10 a share and I decided against buying it and aimed to choose a new stock.

I began to look for other stocks with the similar characteristics.

stock tickers- buying and selling stocks

I looked for stocks that went up and down by a sizable percentage over a short period of a few days, weeks or months. I watched a number of stocks looking for these trends and eventually decided upon GOPRO. I watched GoPro over 3 or 4 months go from around $50 to $60 and back down again more than 3 times. I felt I had a found a trend. This was in early summer, 2015. I invested a few thousand pounds and was confident it go up in the time frame I had hoped. It dropped a little further and I thought I should take advantage of the lower price, so I bought more. I had now invested around £5000 in GoPro.

This was most, if not all of the money in my trading account and most of savings altogether.

Then came the China slowdown in August, 2015. The Chinese stock market plummeted on disappointing figures of growth and expected growth for China’s economy. This sent reverberations around the world, affecting the stock market in London and America. China is the factory of the world, hence the markets got worried that a slowdown would affect the global economy. The shock wave hit individual companies to varying degrees- some went up, some went down. For GoPro, the stock tumbled around 20%. Analysts worried that GoPro would be affected as one of its main markets is China. Basically, GoPro was revalued. The stock price was too high and this event brought the price down to a more realistic view of what the company was worth. From this point on, the stock price continued to fall from around $40 dollars having dropped from $50 to $8.60 at its lowest point. Look at the graph to see for yourself.

GOPRO - buying and selling stocks

In just a few months, I lost 80% of my investment and the best that it came back to was at around $21.

I lost a lot of money.

But I chose not to sell as that would confirm my loss. At the moment, I considered it a loss on paper. It might miraculously rebound and still make me money, but I think that’s a long way off.

The GoPro loss has led me to change my tactics, do more research and rethink my investment strategy. A massive failure like this has not put me off stock market investing but has taught me a lesson. I am embracing this failure as a learning opportunity.

Looking back to Fresnillo, I should have kept this stock after going in and out of it a few times as it continued to drive high up to more than £20 a share. At its highest, it was £21.00. I would have more than doubled my investment! Ahh, hindsight!

Strategies after my big loss.

In the summer of 2015, I started voraciously reading business and self help books. I saw a friend’s post on Facebook about a book that changed his life and helped him create his fairly succeed business and a good lifestyle. The book was the 4 hour work week by Tim Ferris. I read the book and I highly recommend it, but the point is that it got me back into reading, something I haven’t done since I was a kid reading Harry Potter books and a few other children’s fiction books and series. I started reading business books after the 4 hour work week.

I recently finished The intelligent Investor by Benjamin Graham. This is first book I’ve read about investing in stocks. The main message of the book is to look for companies that are undervalued, pay a dividend and should continue to pay dividends in the long term future. This strategy is known as “value investing” and is used by Warren Buffet, who was Benjamin Graham’s student, protegé and now the most successful stock market investor in history.

It is vital that you research the stocks you choose to invest your money in and follow the rules set out in The Intelligent Investor.

There are many variances about the stock market, how the it works, how to invest in volatile markets and human nature itself when it comes to markets and money. However, the strategies in this book work in the long term and with a sizable initial investment, you can grow your wealth on autopilot and make substantial gains. But for those with limited capital and less lofty aspirations, it’s not not worth it. A 10% gain on £1000 in a year is still in £100. Not exactly great business.

man in suit - buying and selling stocksWhat I’ve started doing in recent months, is gambling with highly volatile penny stocks. To avoid disaster, I diversify by buying and owning a few different stocks at a time rather than putting all my money in one stock. The benefit is that you can make 20, 50, 100, 150 percent in a day or a few weeks. The downside is that you can also lose 20% or 50% or 90% of your money in a short time period. I’ve made 60% on a single trade which worked out to be £600 ($750 as it was an American stock) and it happened in about a week or maybe two weeks. I’ve also lost £300 on a trade…not a nice feeling.

The thing to remember about stocks, is that you only make profit or make a loss when you sell the stock.

In theory, you haven’t lost your money until you sell at a losing price. I have two stocks that have lost 80% of their value, but I still own them. One is GoPro – I simply feel it would be too painful to sell these stocks. The other is a highly volatile stock that I still bought quite cheaply but it has the potential to go very high despite the losses I currently have with it.

The process of actually buying a stocks is pretty simple:

1. Open an online trading/ brokerage account (as I said, I use tddirectinvesting.co.uk)

2. Find the stock and it’s symbol

3. Once you have a stock you want to buy, set a target for the price you want to pay

4. Always set a limit price. Never use the market price as they tend to bump it up a little, meaning you are missing out on a few shares or profit. Limit price means that you can specify the exact price you pay. The market price may change once you click go on a trade, so it’s best to be safe and always limit.

5. Set the time period of the limit. This can up be up 3 months. I normally set a few weeks depending on when I think the buy will definitely go through. It doesn’t really matter, but if you put a limit on an order and it doesn’t quite hit that price on the day, you can have the order there for when it does go down to your target price

6. Wait until you own the shares and they appear on your account as yours.

Follow these same practices for when you sell. Always limit the sell price for the same reason.

For the less risky minded among you, ETFs or Exchange Traded Funds are a safe investment. These funds buy a large number of stocks and perform in-line with or outperform the market. Each fund is different and allow you to invest in different markets, and specialize in different types of companies – for example, growth stocks for different industries like oil, mining or the technology industry. These ETFs have diversified holdings, and they generally protect themselves and your money against big losses.

As an entrepreneur, I like to take a bit more risk and therefore attempt to pick my own stocks. If you aren’t quite as enterprising or simply don’t have the time, interest or willpower to learn or research your own stocks, ETFs are the way to go. I mainly buy sell stocks to supplement my income, as I am a student and money can be tight, so making an extra bit of money here and there is really useful.

Conclusion.

I am by no means a successful investor but I am learning all the time.

I’ve had successes and losses. I’ve had many more profitable trades than I’ve had losing trades, but the losing trades have lost me big money, at least for my age and my financial situation. However, my 5 years of experience has taught me what to lookout for and what to avoid when picking stocks to invest in. I hope this article has been an interesting read and for those of you considering to start investing in the stock market.

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Written by Nick Clapworthy

Nick Clapworthy is currently an International business student, stock trader and investor and founder of Shareinsider.co.uk. Currently studying abroad in Seoul, South Korea. @nickclap @shareinsider on Instagram.

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