Goals: Keeping Eyes on the Prize
It has been said that "all roads lead to Rome." Or, perhaps less eloquently, "there's more than one way to skin a cat." If you're not in a philosophical mood, it's the fact that there are many paths one can take to achieve a goal. What is the ultimate goal? It's an important thing to know and something that I've personally lost sight of on occasion.
When investing it's important to realize what goals are and what's the timeframe to achieve such goals. It's easy to say "I want to have more money than I do now." Who doesn't? After all, the ultimate goal of investing is to get a return on your principal and not record a loss.
I try to always keep my primary goal in mind, which is to save enough money to retire from the workforce a few years, or maybe a decade, early and to leave an inheritance.
Other examples of investment goals may include:
- Purchasing a home, or a rental property
- Starting a business
- Taking a dream vacation
- Saving for a rainy day
Whatever it is, don't forget it. Remembering why can help you keep focus and not lose hope during downtrends.
Short Term Trades vs. Long Term Investments
But how do you know when to buy? How do you know when to sell? Well, there are certainly a lot of strategies and theories out there. Whenever examining a stock or a cryptocurrency, I have to first ask myself - "what's my goal here?" It's important for me to recognize whether I'm investing or trading. Trading I typically consider to be more of a short-term deal, perhaps buy something on an upswing (or at a bottom) and hope to sell within a week or two for some quick gains. This is what I like to call "fast money," and while it can pay off, it's usually a bit of a crapshoot. Things tend happen on a macro-level that can cause these short-term trades to fall apart - market correction, negative sentiment, etc.
At the beginning of this year, I made several of these short-term trades - mostly in penny stocks traded in the OTC markets - and had some nice returns. But that all changed in February when the US stock market underwent a major correction. Luckily, I was able to cut bait for minimal loses and avoid major loss of principal. Often times, these "trades" can end up being gambles so it's essential for me to always do research before any purchase. It's a pitfall I've fallen into, just jumping into something at the suggestion of a friend. I constantly have to remind myself to think for myself and try not "buy the hype."
On the flip side of short-term trades, for me, is investing. All of my long-term investments, held longer than a year, are in the green. Why is that? The old adage goes that "time in the market beats timing the market." While this is usually said of major index funds, I believe it can hold true for individual stocks too. I've put hours of research into long-term holds and this has strengthened my conviction and made it easy to add more when they are down.
I like to use the dollar-cost average strategy for long-term investments. It essentially de-risks any adds. Dollar cost averaging is a regular recurring purchase (weekly, monthly, quarterly) of a set amount of stock. For example, one might buy 100 shares of Company X every week to add for a long-term position. I mostly do this with dividend stocks.
Now, for certain long-term investments, I have set price targets that I come up with. These price targets are usually 1-3 years out, so by the time that they are hopefully hit, I can sell my holdings and only be on the hook for long-term capital gains, which are less than short-term capital gains for US tax purposes.
Cryptocurrencies - Trade or Hodl?
At first, I really liked the idea of trading crypto. They are very volatile, so there's definitely "fast money" to be made if you've got the time and patience for it. But after a few weeks of doing this, I realized that many of the major coins have such good long-term growth prospects that it just didn't make sense to trade these to me.
There are thousands of so-called "meme tokens" out there now; it seems like more and more new ones are coming out every week. Personally, I avoid these coins. Sure, you can make some serious gains but there are an equal number of stories out there of massive loses. After careful consideration, I've decided there just not for me.
So, for now, my plan is to have recurring buys on the following cryptos: Ethereum, Cardano, and Algorand. At this point in time, Bitcoin is trading in a range of 30k-35k, and I will add satoshis at the low end of that range but have not set up recurring buys. Cryptocurrencies, to me, are long-term investments. As more and more adaptation takes place and further use-cases are proven, it only makes sense.
Conclusions
Everyone has their own trading and investing philosophies. I personally do a mix of short-term trading and long-term investing. Sometimes, the short-term trading funds the long-term investments. I've been at this for a very short time, about two and a half years, but the main things I've learned through mistakes:
- Don't chase hype, always consider the charts
- Perform your own research, don't trust anyone's word
- Patience pays and gains take time
- Learn from your mistakes so you don't make the same mistake twice
Never stop reading and learning. Study as many sources as you can, draw your own conclusions. Develop your own style.
