Should you get into investing?
First thing first, should you get into investing? I think the answer is yes for everyone. Our money loses its value because of inflation. The easiest and safest thing to get into investing is to buy some broad market index funds. The US S&P 500 index has an average annual return of about 10%, around 7% when adjusted for inflation. So why not? But should you get into investing now? The S&P 500 is near an all time high and this may not be the best time to put all your money into the market. On the other hand, timing the market isn’t wise either. The safer approach would be setting up a schedule and investing a certain amount of money regularly (also known as dollar cost averaging).
Should you get into active investing?
Should you go one step further and become an active investor who picks individual stocks? This depends on a few factors. If you’re close to retirement age already, active investing would be too risky for you. You don’t want to lose all your savings just before you retire. It also depends on if you want to spend the time and effort picking individual stocks. Investing in individual stocks can be fun, but it can also be stressful. You might lose sleep over your stocks when you first start out. You truly only live once (YTOLOTM) and there are so many other fantastic things you can do with your life rather than stress over stocks. Are you willing to sacrifice your time and energy to get a better return than the market? The thing is — there is no guarantee at all that you will beat the market — there is a very good chance you won’t.
On the other hand, if you’re already into the economy, technology and business, you’re likely more suitable than others to get into active investing. Your knowledge in these areas can be a good asset in investing.
If you decide not to get into active investing (good choice by the way), you can skip most of this blog and jump directly to the ‘Books you should read’ section to avoid wasting your precious time. Otherwise let me bore you with my investing journey, which serves as an introduction to my investing background, which helps explain why I think the way I do now.
My investing journey
My investing journey started in 2017, one year after I started working. My first purchase was BMO’s ZCH ETF and my first purchase in USD was a Chinese internet EFT called KWEB. As you can see, I was fairly bullish on the Chinese tech sector back then. I didn’t hold these very long. The chinese tech sector hasn’t been a good investment for investors — the sector never recovered after Xi’s tech crackdown in 2021.
The journey got very exciting in 2018, too exciting. That year Canada was legalizing cannabis for recreational use and weed companies were all the hype. Before the law officially passed, everyday you would see some weed companies going up 10% to 20% and it was very tempting to get into the orgy too. As the novice investor that I was, I gave into the infamous FOMO (fear of missing out) quickly and bought myself some shares. It did not end well. Instead of the high the weed companies promised, I got into a depression after losing more than 40% of my savings. I had just started working and it was painful to see the money you worked hard for just evaporated. I’m actually glad it happened then, because I didn’t have that much saved at the time. Imagine someone who was about to retire and then lost 40% of their life savings. That’d be devastating. I’m sure that did happen to some people.
Even with that painful experience, it still took me more time to really reject FOMO. There are just too many temptations in the stock market (and of course, the infamous crypto). You’ll likely have to learn this through some painful experiences yourself. Some advice you’re likely to ignore: Do not buy what’s currently popular. Do not buy what has been shooting up. Do not listen to stock pick advice. Unless you do your own homework.
When the GME sage happened in 2021, I was finally mature enough able to stay calm. I did get a few shares to be part of it — it was great entertainment. Funny enough I inadvertently bought some AMC shares because movie theaters got hit hard during the pandemic and as a movie lover, I wanted to show my support in a way. Then unexpectedly AMC got pumped by reddit. That was the first time I saw +400% with plain shares. That was some pure luck.
The stocks that gave me the most return in the past year, however, weren’t pure luck. These are the stocks.
Stocks I own or owned
Duolingo
Duolingo is definitely not one of the popular stocks. I don’t know anyone else in real life holding this stock and I rarely see any online discussions about it. I first bought it not long after it IPO’d in 2021, at $175. In the following two years it sank lower and lower and at some point it reached $65. That’s a -60% drop. Yet I held on. I actually kept buying more shares over the last two years. At one point, half of my stock holdings were in Duolingo stocks. (I’ve rebalanced lately after the recent incredible jump.) So how come I have so much faith in Duolingo?
That faith is partly due to my history with the app. I first started using the app back in 2013 (more than 10 years ago!) when it was a completely different app and used it on and off since then. I witnessed how it evolved into a better app every step of the way and noticed more and more people started using it. A lot of people I know are using the app now. Earlier this year I went to Thailand for vacation and one morning I was having breakfast in the hotel restaurant and decided to do a quick lesson. Another guest passed by, recognized the Duolingo sound and commented about it, “haha Duolingo?” That made me chuckle. Funny enough, the Duolingo sound was also featured in the Barbie movie. It wasn’t a paid advertisement.
I’ll admit Duolingo is not the best way to learn a language on its own but it’s fun to use and it helps. I have language tutors via Preply and use Duolingo as a secondary tool now.
Spotify
I really like the app and I’m definitely not alone. Spotify faces fierce competition from Apple Music, Amazon Music, YouTube Music and all these big techs also offer bundling, which means you can get music streaming cheap if you use their other services at the same time, notably if you get YouTube premium, you get YouTube music for free. Apple also offers bundles that also include Apple TV plus and iCloud storage space. Yet Spotify is still able to attract new users and subscribers quarter after quarter.
Spotify hasn’t had many profitable quarters yet because the music business margin is small (most of their revenue went to record companies) and as a result Spotify is getting into podcasting and audiobooks for a higher margin. I love podcasts and have an Audible subscription so I like the direction they’re going. Looking forward to having audiobooks as part of my subscription, even if it means I’ll have to pay more for a standalone subscription instead of sharing a family plan.
Netflix and Meta
In 2022, I bought some Netflix and Meta stocks when they dropped more than 70%. The stock market can be quite irrational at times and that offers great opportunities for us. The huge drop for Netflix and Meta was irrational. Each of them gave me a nice 100% profit and I no longer hold either stock because I have some objections to these companies. More on the objections later.
Disney
I didn’t grow up watching Disney and I don’t consider myself a fan. However, I’m a huge fan of Pixar. I was super mad at Disney for putting Pixar movies on streaming when the theater had already reopened. In fact I still strongly resent Disney for depriving me of the chance of watching Turning Red in a movie theater in Toronto — it’s a movie set in Toronto and that would’ve been so perfect. Anyways, it had my attention when I kept seeing news articles about how the stock hit a 9-year low. I had been paying attention to the Disney dramas from afar. The Scarlett Johansson drama. The two Bobs drama. The activist investor Nelson Peltz drama. I like this kind of stuff in general, for instance, I actively follow the FTC’s antitrust case against Amazon, Epic’s lawsuits against Apple and Google, the European Union’s digital market act and how it’s going to force Apple to make changes they really don’t want to make. I follow these like some people follow sports.
Anyways, the 9-year low made the stock attractive to me. I’m no Disney fan but I know plenty of them. So I looked into Disney more and decided to get some shares. It has been doing relatively well. I’m not sure if I’ll hold it for the long term though — I’m just not a fan.
Other holdings
I also hold some Chinese tech stocks such as BILI. They take up a small percentage of my holdings. I’m waiting for a turnaround but I’m fine with it if that will never come. In general, I don’t recommend investing in Chinese stocks.
I hold some index funds in my retirement accounts and I also don’t actively trade in these accounts. They currently have a significantly lower return than my other accounts but I plan to keep it that way.
Stocks I don’t own
As you can see, I don’t own the more popular ones such as Tesla, Nvidia, or Apple and my opinion is that you do not need to own these stocks to get a good return.
So why don’t I hold these companies? For Tesla and Nvidia, I just don’t have great insight into their industries. I don’t even drive. There are so many car companies out there and Tesla already has a pretty high valuation. Maybe that’s justified but I can’t evaluate that properly and I can’t rely on the evaluations of other people. Similarly I don’t have enough information to evaluate the competitive environment for Nvidia. Will another company come with a competitive product soon? (Note: a week after I started writing this blog post, AMD actually released one) Different people have different opinions and some random guy on Reddit may make seemingly great arguments for one side or the other either. Don’t make financial decisions based on what a random guy says on reddit.
I also don’t own Apple. Or Microsoft. Or Amazon. I don’t use products from Microsoft so that one’s easy. Microsoft has done exceptionally well but I don’t feel I’ve missed out at all. I’m not a fan of the big tech in general and I think there is a lot of merit in “breaking up the big tech”.
Important Note: do not buy any of the stocks I listed here unless you do your own research first. Buying a stock like Duolingo after it has gone by 200% this year is definitely not a wise move.
Lessons
Don’t listen to that random person online, or offline
You shouldn’t die for other people’s beliefs, no matter how strong those beliefs are. Similarly you shouldn’t lose your hard-earned money just because you know someone who has a strong hard-on for a stock ticker. One can avoid a lot of pain in the stock market just by being less irrational and stupid than others. When I first got started with investing, I made the common mistake of buying stocks that are popular or stocks that are frequently talked about on Reddit. I did very little thinking myself. Some random person on Reddit was talking about a stock that supposedly had a lot of potential and I would buy some — well what if it skyrockets soon? Is it possible to make money that way? Yes, but more often than not, one’d lose money.
Use your first hand knowledge but do your research
As retail investors, we do have some advantages over institutional investors. We’re surrounded by apps, brands, companies and we know some of them better than most other people. I’d say I know Duolingo better than most people. The companies behind these products can be good investing opportunities. I don’t use Snapchat but you may know Snapchat better than most. Are Duolingo and Snapchat worth investing? You’ll have to do some homework to find out. Identifying the companies is just the first step. Are they currently making a profit? How much money are they making? What are their growth prospects? What is their current P/E ratio? You need to answer all that and read up their quarterly financial reports. If you think that’s too much work, just stick to index funds. Really, don’t throw your money away by picking stocks.
We have another important advantage over professional investors thanks to, unironically, our own professions. I work in tech (more narrowly, software) and I believe I have certain advantages when looking at a tech company. Similarly, someone who works in the chips industry would have a better perspective on Nvidia or AMD. Not that I would trust their opinions though.
Buy decent companies at a low point
One of the rare opportunities for us retail investors is that sometimes the market overreacts and causes some companies to drop more than it should. The 70% drop for Netflix and Meta in 2022 is a perfect example. However, not every company is worth buying when it’s down 70%. Maybe it’s actually dying, or maybe it was just overvalued that much. How would you know? The best you can do is research the reason behind the drop and evaluate if it’s an overreaction or not. If you can’t decide, then you should stay put. Even if you’re wrong, it shouldn’t be a big deal, because you shouldn’t risk a large portion of your money into one “play” anyway. Always assume you could be wrong and never throw all your money into a single stock. Diversification is an important concept in investing and it applies even if you’re picking individual stocks. Don’t just pick one.
Investing, inequality and capitalism
I’ve thought about how investing contributes to inequality. The rich are able to invest and get richer while the poor has no money to invest because they can barely get by. It’s ridiculous that buying and selling stocks while sipping your fancy latte can make more money than my parents working at a factory for a whole year. It honestly feels fucked up. I have, however, accepted this as part of how this world works. I applaud people who opt out but I can’t. I just can’t stand rich people getting richer by not doing much. These people aren’t even that smart. The activist investors, what do they really do, yet they demand the companies they target to do layoffs. These activist investors actually motivated me to put more time into active investing — I have enough experience and intelligence so why shouldn’t I too make better use of this capitalist system?
I know some may think of me as one of the rich. I sincerely object to that. Certainly I have a pretty good tech job but I’m from one of the poorest regions in China and my parents, as migrant factory workers, don’t have a safety net when they retire. I already mentally allocated half of my net worth for their retirement. If you’re angry at the rich, there are better targets to direct your resentment to.
Investing and morals
Some may laugh at the idea of involving morals in investing. I take it pretty seriously. I don’t invest in companies I find morally objectionable. I do research on the companies I invest in. Spotify, for example, has a reputation of paying artists poorly. Yet that’s a misconception. Spotify pays 70% of their revenue from music streaming to the record labels and how the artists are paid is up to the agreements the artists have with the record labels. One may then reasonally question why the revenue per stream on Spotify is lower than other streaming platforms. The explanation is that Spotify has a more international user base and a stream in India doesn’t pay as much as a stream in the US, similar to how an ad impression in the US generates more revenue than one in China. I’m not defending Spotify here because one is entitled to their opinion but my conclusion after reading deeply into how Spotify makes money is that I feel comfortable investing in this company. On the other hand, I can’t say the same for Apple, and as a result, I won’t invest in Apple unless something changes. That something could also be its stock price dropping 50% — I’m flexible, after all, I even bought META after its 70% drop. Yes, I don’t invest in META because I don’t believe their products (except WhatsApp perhaps) are good for the society even though I’m a heavy Instagram user.
Books you should read
As a starter, you should definitely read John C. Bogle’s The Little Book of Common Sense Investing. He was a strong advocate for investing in low cost index funds. These funds track a broad market and you’ll be able to get the market return. They also typically have the lowest management fees.
For active investing, I’d recommend Peter Lynch’s books. I learned the most from Lynch and if you read his books, you’ll realize this blog post is just a rehash of what he already said.
Getting started
You can get started with creating an investing account with your bank. A lot of banks offer investing accounts but in case yours doesn’t, there are popular brokers where you can trade stocks. Schwab and Interactive Brokers are two popular ones. I personally use Interactive Brokers and found it pretty good. If you’re interested in starting an account there, you can use my reference link. If you’re in Canada, I highly recommend Wealthsimple, which offers zero commission trading. My referral code is BD_W4G.
Ending Notes
I started writing this blog two weeks ago and a lot happened since. Legendary investor Charlie Munger passed away and I recommend everyone who is interested in investing to read more about him. News specifically related to my holdings include Nelson Peltz is restarting his proxy fight with Disney and Spotify announced a surprise layoff. You wouldn’t need to care about news like these if you don’t invest in individual stocks. Just invest in index funds and relax. But then, you see, I’d still follow these news even if I don’t invest in these companies.