Overcoming Investment Fear

 

Overcoming Investment Fear

 

It’s not hard to say why I never really got into the stock market before last year.  I was afraid.  Every penny went to raising our four kids.  I saw it as success if we did not have a negative bank balance at the end of the week.  I remember the garage sales and the trips to the pawn shop just to get us back in the green.  Back in Georgia I did take $500 from a tax return and opened an account with TD Ameritrade.  That was back when you still had to pay commissions.  So I opened the account, but 2 weeks later I needed the money, so I just withdrew it all and closed the account without ever trading.

 

We were never really about the money either.  We were living paycheck to paycheck and pretty happy, but never wealthy financially.  I still find it hard to believe that for the 4.5 years when we lived in Georgia, we only had ONE vehicle between us!  Waiting outside PCC for my wife to pick me up was just a thing we had to do sometimes.  However, there was a slight fear of materialism that made me villainize the financial market and those who were better off.  In a way I had a fear of success and a fear of investing.  So what changed?

 

Last summer, when I was filing taxes, there was a deduction I could take if I contributed to an IRA.  It was the first time I felt like I had a few bucks to spend on it, so I opened my IRA and then I forgot about it.  Friends at work were telling me about their investments, and I started getting curious.  A close friend shared a link with me so that if I opened a Robinhood account, then both he and I could get a free stock.  I got 1 share of WPX.  That started me on my journey of overcoming my investment fear. 

 

Investing involves picking the right stock at the right time at the right price, and then selling said stock at the right time for the right price.  There are a lot of similarities between investing and gambling that are worth considering before investing.  Can you deal with the stress of seeing your stock price go down?  The first week I bought HGEN, I saw it lose about 25% in value!  I’m glad I did not set a stop loss or I probably would have just been discouraged so much that I would want to quit.  Instead I rode it out.  I added more money to the account and bought down my average.  In the end I saw it bottom out near a 50% loss.  So in a 3 month period, I rode out a full investment of HGEN seeing a 50% loss and then a 95% gain on my investment.  As a side note, I don’t know if I will ever use a stop-loss, just because I know they are often manipulated on low volume days.  Most people that use stop-losses, set them to trip and sell at 10-20% loss.  Some stocks hit a 10% day loss a couple times a month, so setting a stop-loss would be throwing money away in my opinion.  So my failures have been good teachers. 

 

 Picking the stock:  Predictability breeds confidence.  If I am looking for a stock to trade, I want to find one that is trading near it’s low price and with a large enough range to support a 3-5% 1-day growth rate.  I am looking for something that also has a large enough trading volume, say 500K and up.  By studying the individual stock historical data downloaded from the Wallstreet Journal, I can check the range.  By using TD Ameritrades free software, ThinkorSwim, I can find stocks that are near their all-time lows and that have traded large daily ranges.

 

Picking the right entry price:  Trade within the historical data range.  So I have picked a stock (WINT), near its low.  Now I want to set my entry point.  In the last week, the low from open (LFO) has averaged 3%, so whatever the open is, that is what I will set my limit price for.  If it opens at 1.75, I will set it for 1.70.  If it is increasing in value, then I will have to adjust to a 2.5%, so if it opens at 1.74 and it has had an increasing range of LFO at 2.6%, then I will set my limit buy price to 1.70.  I always target below the open.  If it doesn’t take, that’s okay.  When it does trade, then I have to wait a day to sell. 

 

Setting the right exit price:  So the next day I set my limit sell order for 5% above what I paid, unless the range does not support it.  The average range for WINT in the last month has been 8% from previous day low to next day high, so 4-5% is a good target. So I bought at 1.68 and sold at 1.75 this last time.  If I had set my sell price higher, I could have made 10%, but the odds of it selling the next day go down with each percent that I increase the sell price.  If I want to make 20%, it will take a long time to hit that price.  I am aiming to sell the next day, so I will trust the data and get my 4-5%.  I have done that 5 times in the last 2 weeks!

 

Conclusion:  Predictability breeds confidence and understanding how the market moves is the first step to overcoming the fear of investment.  If you trade, do your research, trust your data, and start off small.  Please do not take this as investment advice, but as me sharing my investment journey.  The market is a tool so that I can reach my financial goals.  Plain and simple.  Happy trading!