I have been investing in individual stocks for 45 years and still have a portfolio. Investing in individual stocks is something a lot of us have done at some point in our lives with varying degrees of success. Making “easy money” in the stock market has a good deal of appeal but proceed with caution. If it were easy then we’d all be multimillionaires.
After years of trading and reading about trading I have come to a simple conclusion. There is no fixed formula that can be used to make money in the stock market. Reading books by Peter Lynch and Jim Cramer are a good way to learn some of the basics and gives you their formula for success. But successful trading formulas are as unique as fingerprints. It’s very hard to take someone else’s formula and successfully make it your own. I’m convinced that there is a 6th sense that goes with any successful formula that makes it work.
At the risk of encouraging some of you to jump in with both feet, I thought some of my experiences might be useful. I got the bug with my first trade. I bought 50 shares of Winnebago at around $12.00 when I was in high school. My father’s broker was pushing the stock and he was buying some so I thought it was a good opportunity. The stock immediately fell to single digits and I learned my first investing lesson. Don’t blindly listen to what brokers recommend. I went off to college and forgot about the stock for a few years. At some point I was down to my last few bucks and looked at the stock price in the paper. Winnebago was trading at $18.00 and I immediately sold. Not only did I make some money, but I learned the second important stock trading lesson. If you buy good companies and are patient, you will be rewarded eventually. Since that trade, I have bought and sold hundreds of stocks making more than I lost. But there was a third lesson in the Winnebago trade that I didn’t see for several years. Panicked investors will almost always lose their money. Many times my positions are down 20%, 30% or 40% and I resist the urge to panic because the market overreacts to short term issues. Sometimes I’m wrong and 40% down becomes 100% but more often, I’m right and the trade works in the end.
I’ve spent my life figuring out how to make losing companies profitable and profitable companies more profitable. Part of my formula is the gut feel that I get from the business plan and management when I read about the business. That gut feel has saved my butt on many occasions. Still with all the training and experience my results have been mediocre.
Buying stocks and making money is more art than science. You only need to look at the hedge funds to see the reality in that statement. You can’t paint Water Lilies just because you have paints and a brush unless you have both the passion to learn how to paint and the skills of Monet. Making money in the stock market takes the same level of commitment to hone your skills and an innate ability.