Obscure Problems and Gotchas

I have had an interest in trading stock since I was a kid. I hate that I am aging myself by saying the following sentence, but when I was a child you would open up the newspaper and look at the stock tickers (symbols) and see how they were doing daily👴. It was fun to look at a grid of numbers and trying to decipher what the hell it all meant. Of course, with having a refresh rate of twenty four hours, it wasn’t all that great.

Shut up old man! I just want to learn how to trade!

No problem, skip all of this and go to the section labeled “Let’s begin the lesson here“, now get off my lawn!

My first trades

I started trading stock after I got my second real job shortly after being laid off from my first job in 2008. In 2008 we had a massive financial crisis that turned the economy upside down. It was a good time for someone like me to test out trading in the real world because stock was cheap because no one wanted it. I couldn’t afford much stock, but I bought stock like Citigroup (C) for $4 a share. As of 08/25/2024 they are worth $62.14. Well I sold them around $9 or $10 a share because I was still piss broke and I needed my money back, but I felt accomplished. I had a low volume of like ten shares. It was exciting and I learned a lot from my experiences risking money. Luckily, to date, I still have not lost anything of significance financially trading. Now I have had many disappointing trades only to buy and basically sell for what I bought the stock for because I was so frustrated with the company. Still not a loss, not a good gain, but I will take a net zero loss as a win especially when I had no idea what I was doing.

Frustration

At one point, I became frustrated with the stock market. Every trade I tried kept going upside down, so I waited until things leveled out and then I liquidated everything I had. I swore off the stock market and I put my money into a high yield savings (HYS) account because it was easier. I let my money sit in my savings account for a long time earning 5% interest, which eventually fell all the way down to 0.75% interest. That’s when I snapped out of it and realized the stock market is a necessary evil… unfortunately. I’m not going to get into my views on why I think the stock market is evil because that’s not what this site is about, but just know that the stock market is basically organized crime or legalized gambling. Like it or not, in order to grow your money to keep up with the rate of inflation, you should be investing into the stock market.

The Epiphany

What I did not understand at the time, when I put my into an HYS, was that the Federal Reserve Board also known as just “the fed” had raised interest rates to help combat whatever financial crisis we were in at the time. This is a cyclical constant. Therefore, I mistook the sweet 5% I was getting for granted! Why would I risk my money in the stock market when I can just get 5%? Well the answer is simple, aside from the interest rate inevitably being cut to what is effectively a zero interest rate, you can on average get a 10% return in the stock market by not doing much of anything. Inflation grows at about 2-3% annually, so you need to make sure you get ahead of it. If you are only getting 1% interest on your money, it’s literally losing it’s value each year. It sound ludicrous, but it’s real and you need to be financially responsible and not let this happen to you if you can help it.

So to correct this I decided I was going to buckle down and learn what I was doing wrong and try to correct my mistakes. I was too afraid to pull the trigger on anything because of my past bad experiences, so I decided I would just play it safe and put my money into a target date fund.

Let’s begin the lesson here

If you have absolutely no idea what you are doing and you are terrified to do the wrong thing, then you can put your money into a target date fund. I am not particularly a fan of target date funds because they have horrible performance, but they are safe and affordable! Now that’s great, but what exactly is a target date fund you ask? Great question!

Target date fund

Target date funds, like the name implies, is a fund you invest into that matures at a predetermined date. When your fund reaches that date, it is liquidated and returned to you. That’s it. You literally don’t do anything, you just provide the money to be invested and a fund manager invests your money for you for a stipulated management fee. There is no such thing as free, especially not for convenience. Target date funds are generally what are suggested to people with retirement accounts such as an IRA or a 401K. It is the epitome of set it and forget it. It’s essentially guaranteed to grow with the market, but of course if the market takes a nose dive, so does your target date fund. This is basically true for most investments. If it was easy and risk free; everyone would be doing it.

The whole point of a target date fund is to select a future date of maturity for your investment. That date is supposed to be your retirement date. So for example if you are an old goat born between 1983 and 1987 you would like to retire in the year 2050, therefore you would enroll in a 2050 target date fund. It’s that simple. The other benefit of target date funds is that the share prices are generally kept stable so that it’s affordable to purchase at any time. You are never going to see the price jump higher than 10 bucks. The whole point is so that people can afford to buy it. In other words, safe is incredibly boring and has a much lower rate of return.

High risk high reward

Well if target date funds are boring to you, you won’t like mutual funds either. They are almost basically the same thing. High risk is given high reward. Of course, the down side is that risky investments are risk and you can lose everything. So let’s talk about some basic rules of investing before we continue:

1. Don’t invest money you cannot afford to lose. That’s called being irresponsible, don’t be irresponsible please.
2. Never put all of your money into one investment, you must diversify. This goes along with the old adage “Don’t put all of your eggs in one basket.”
3. Previous and historical performance is NOT an indicator of future performance! In other words, just because you saw a stock skyrocket before absolutely does not mean it will do it again. Now of course this gets murky because historical analysis is absolutely used to guide yourself on trading decisions. Everyone does it, the point is you cannot predict the future. All you can do is try your damndest to make an informed decision.
4. News drives stocks. Good news usually makes a stock’s price rise. Bad news usually makes a stock’s price fall. This too is not this black and white. It takes experience to know who this applies to. There are some companies that are basically immune to this, but that’s a more advanced and deeper topic.
5. Try to make decisions without emotion. Always try to rationalize your trades, don’t trade when you are overly emotional and do your best not to make fantasy scenarios that lead you astray.
6. DO NOT panic sell! When a stock nose dives, that’s not necessarily a bad thing. If you sell your position at the first sign of trouble, you just lost. There is no reversing this without incurring penalties. Also if you couldn’t afford to lose the money you shouldn’t have invested it to begin with.
7. Buy the dip! When a stock nose dives, that’s called a buying opportunity! It’s risky, but in most cases if it’s a stock you have researched and you think it will rebound, then what’s the harm in getting into that stock? Time? You just need to wait while you make free money? If you can’t afford it, don’t do it. If you can, then make an informed decision and buy that dip, that stock is on sale!
8. As dumb and as obvious as this sounds, “Buy low. Sell High.” Warren Buffett is 100% right about this.
9. No one has ever lost money investing in the S&P500.
10. Be patient. Above all else, you have to be patient and strike at the right time. This takes discipline and experience.

Emotional attachment

There is a concept called “Paper Trading” which is the act of trading with imaginary money. This is great for practice, but my problem with this is there is no emotional attachment. It’s too safe. Because it’s risk free, when you lose it doesn’t hurt. When you win, it leaves you feeling empty because that could have been actual realized gains. Therefore, to learn how to trade and get better at it you must put skin in the game. When you have something to lose, you will pay attention and you will do your best to stay informed and come out on top. If you aren’t going to pay attention there are alternatives.

The money paradox

You have to spend money to make money.

Titus Maccius Plautus

This quote is absolutely paradoxical because if you don’t have the money to invest, you can’t make money. I absolutely lived this experience.

I was questioned once by a co-worker, “Are you taking advantage of the 401K?” and I told him, “No”, to which he replied, “Well that’s stupid, you aren’t taking advantage of the free money?”. He is referring to how most companies will match what you put into your 401K up to usually 10% of your salary. I got a upset by this because he was being insensitive and I told him, “I can’t afford to pay into the 401K because this company does not pay me enough.” He just had this broken look on his face like he didn’t believe me, but such is the expected response from people who have never struggled financially.

The reason I am bringing this up is for two reasons:

1. Be responsible, don’t invest if it’s going to hurt you. Obviously, do whatever you can to improve your situation financially (easier said than done, I know, I’m sorry). At least put your money in an HYS.
2. There is no such thing as FREE. It doesn’t matter what we are talking about, there is a cost associated with everything. No one does anything without expecting something in return.

Luckily, eventually my financial situation improved. I paid off my student loans by living like a miserable son of a bitch for many years until 2014. That enabled me to start investing and enjoying life a little. Getting that massive American financial burden off of my back helped tremendously. I prioritized the removal of a burden over my immediate happiness and I do not regret it. I know not everyone can do what I did, but I am just sharing.

The S&P 500

I want to be very clear about something before diving into what the S&P 500 is and why it’s so important.

The S&P 500 IS NOT THE ECONOMY.

Many uninformed and inexperienced individuals make this misguided connection. It’s absolutely false and too complicated to get into for this article. This is a topic all on its own which I might cover in the future.

What is the S&P 500?

The Standard and Poor’s 500 is a market index of five hundred company symbols which is curated by financial analysts who work for Standard and Poor’s. This is not owned by the United States government. This is a completely separate sovereign business entity based in Manhattan New York. They are not exempt from US laws, my point is they an independent organization. They are essentially the gold standard for financial market analysis. In other words, their opinion matters a lot about a lot.

This market index is a snapshot of the U.S. stock market and the broader economy. It’s an economic indicator. In other words it’s the canary in the coal mine. Miners would take canaries into mine shafts with them while mining to determine if there was enough oxygen to continue mining. If the bird died it was dangerous to be there and they would flee. The S&P500 is a stock trader’s canary. If the S&P500 is up, then the broader economy generally speaking is doing well. If the S&P500 is down, then the broader economy generally speaking is not doing well and we may have to be concerned.

Can you buy the S&P500?

No you cannot buy the S&P500 because it is a market index. It has a reserved symbol of .INX, ^GSPC, $SPX or others depending on the website displaying the information. However, you can instead purchase an ETF that mimics the S&P500.

What is an ETF?

ETF stands for Exchange-traded Fund. It is a collection of securities (not always just stocks) that can be traded as if it were just a single stock. ETFs single handedly made Target Date Funds and Mutual Funds almost completely obsolete. ETFs have either no fees or low fees involved for management. They are much easier to work with over things like target date funds and mutual funds.

Therefore, if you want to purchase the S&P500, you would elect one of the many popular choices. I am not going to dictate what you use, do your own research, but here are just three examples:

1. SPY
2. VOO
3. IVV

They are similar, they are not identical and you may have a preference to use one over another depending on who your brokerage is. So for example, I am partial to IVV because I use Fidelity as my brokerage. I am given benefits for investing in iShares branded stocks such as zero dollar trades and zero fees. Which means, I can trade it for free and they don’t take fees from me to manage it. That’s a nice benefit. The most popular in that list is SPY because they tout themselves as being the first to offer this ETF. ETFs are still a relatively young investment vehicle.

What is an investment vehicle?

All of the different products that we have spoken about up until now are referred to as investment vehicles. Think of your raw money as the driver and the thing you invest your money into is the car.

When you put your money as a driver in a…

• …mutual fund, it’s like it’s driving a Yugo.
• …target date fund, it’s like driving a Ford Pinto.
• …exchange-traded fund, it’s like driving a Toyota Corolla.

This is just a poke fun example so don’t get your feathers ruffled if you don’t like the comparison. The point is it’s listed worst to best in my opinion, but all of the cars can still crash. Just keep that in mind.

From this point on, any other types of investments mentioned like HYS, Money Market accounts, Bonds, Certificates of Deposit (CD), Robo-Investors and more are all just different ways to invest your money. It’s the vehicle that drives your growth.

If the S&P500 is so wonderful why don’t I just put all of my money there?

You can do that, but you shouldn’t for the same reason that you should not put all of your cash into an HYS. It would be irresponsible. Now, if you don’t have the time of day to pay attention to your investments, then this is an okay strategy, but you really would need to get in at the right time and that’s very hard to determine. In other words, if you buy too high, you aren’t going to do very well and there is more downside than there is upside to the investment at that point. The statement, “No one has ever lost investing in the S&P500” is only true if you don’t do something stupid like buy at peak before a market correction. You absolutely should always have exposure to the S&P500, but you should not put all of your eggs in one basket. You must diversify. Therefore, if you are the type of investor who cannot spend too much time picking stocks then you should consider a Robo-Investor.

Why use a Robo-Investor?

Robotic Investors are a relatively new invention and I evaluated them for a long time before fully trusting them. Robo-Investors will invest your money on your behalf automatically. It means that you don’t have to lift a finger. You put money into the account and the robot will invest it for you. It will even sell your investments on your behalf before re-investing them again later. It’s actually quite a nifty invention and I am a big fan. That being said, it’s not risk free. I am not providing financial advice, I am just stating a fact, I use Fidelity Go. I recommend you research whatever Robo-Investor you are comfortable with using. I just happen to be using this because I have been a Fidelity customer for many years.

When the market takes a hit, meaning the S&P500 shows weakness, then my Robo-Investor also shows that same weakness. It’s because a large part of what it trades is the Fidelity flavor of S&P500 ETF. This is fine, whenever there is a market disruption I take this as a buying opportunity and I put more money into my account and let the Robo-Investor recuperate my investment. No panic selling, buying the dip and patience.

In the above graph you can see it has a steady trajectory of up year over year. I have been receiving a steady 10% which is honestly a decent return for me doing absolutely no work. Therefore, that’s why I recommend this as a great option over a mutual fund or a target date fund. I think it has far more potential and it’s adjustable to a degree. I try my best to do quarterly deposits or when buying opportunities present themselves. The dark blue line is my actual trajectory. The light blue line is where I would have been if I wasn’t contributing to my account.

Investment configuration

Now by this point, if you are still reading, just know the rest of this may not apply to you just yet if you:

1. Won’t have the discipline to keep up with your investments.
2. Cannot afford to spread yourself out across different accounts.

I have a recommended investment configuration that you can obviously ignore or configure however you’d like. It’s absolutely not one size fits all because it depends on your income level and what’s going on in your life. So please just read this as a suggestion, not law.

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I recommend that you have the following accounts, each has its purpose and they will transform depending on your income level. You can thank the IRS for that. When you are reading the rational, please in your mind prepend the phrase “If you are able to” before it.

Account	Rationale	Tax Implications
401K	If you able to, invest in your employer’s 401K. Not all 401Ks are made equal meaning they may not necessarily match your investment. They more than likely have a vesting schedule. They may only deposit funds at the end of the year and a lot of other really irritating corporate nonsense. Some 401Ks allow you to invest however you’d like, others use target date funds by default. Me personally, I just take the target date fund so I won’t be bothered with an account I hardly have any control over to begin with. Let it just run on its own, ignore it until you retire. Attempt to take advantage of the highest salary percentage you can and your employer may match your investment up to a specified percentage.	Pre-tax. Meaning that the money you put into your account is deducted from your reported taxable income. This means lower taxes for you at the end of the year.
Roth IRA	Depending on your income level you may take advantage of a Roth IRA which is just a tax shelter account. You literally can invest your money however you want. There are contribution limits. I recommend you hit them if you can.	Post-tax. Meaning that the money you put into your account are post tax dollars. You should still get a deduction at the end of the year for your contribution.
Traditional IRA	You do not want to use this account unless you: 1. Have to roll over a 401K. This happens when you do not have another 401K to roll your funds into or you just retired and are forced to take your money back. 2. Are no longer allowed to contribute funds directly to a Roth IRA. Once you reach a certain income level, you are not allowed to contribute to a Roth IRA. If you do, you will incur a penalty from the IRS during tax season. The irony is that you can use a tax loop hole that is 100% legal called “The backdoor method” in order to convert your Traditional IRA contribution into a Roth IRA contribution. I literally do not understand why this is a thing, but it is and therefore you will take advantage of it.	Post-tax. There are restrictions on how you can use this account. For full details go to: https://www.fidelity.com/retirement-ira/roth-ira they explain it really well.
HSA	Health Savings Accounts are not primarily an investment account, but that is their secondary function. You can open an HSA separately from your employer, the funds and account belong to you forever. Instead of using it for health related purchases, you can use it as a tax shelter for your money. You can invest the money in this account however you’d like. There are contribution limits. If possible, try to hit them.	I’m not yet totally familiar with this product so again I will defer to fidelity to explain it better than me: https://www.fidelity.com/go/hsa/why-hsa
Brokerage	You trade stock here. You can move liquid cash in and out of this account freely. Use this for experimentation and for risks. My personal goal is short term gains, but sometimes you have no choice but to make them long term gains.	Zero tax benefits. You pay more taxes on short term gains and less taxes on long term gains.
ESPP	Employee Stock Purchase Plan is not something that is offered by every employer. I can’t even say you will want to participate in this because it depends on the company. The upside is that you are able to purchase your company’s stock at a discount. For example, you may be able to buy stock for 10% less than market value.	This unfortunately gets complicated because it comes down to your company’s policy. For example, you may not be able to sell your stock for two years otherwise you may be hit with an IRS penalty. Lots of stupid rules.

The reason I recommend the above configuration is 90% retirement focused. Pensions are a thing of the past, so if you are like the unlucky many who do not have a financially secured retirement yet, then YOU have to fund YOUR pension. Gone are the days of corporate pensions. Pensions do still exist in some capacities, but that’s a whole other topic. I assume you do not have a pension if you are reading this.

A little more about taxes because it matters (sorry)

I know taxes is boring, but you have to know about the legal definition of two types of holdings/positions:

1. Short position is when you buy and sell a stock before one year of maturity.
2. Long positon is when you buy a stock, hold it for a year or longer. Then sell it after the chosen maturity period.

This applies to EVERY tax-lot you own and it matters because you are taxed at a higher rate for short positions. Long positions have a lower tax rate. These are known as capital gains. Capital gains is treated differently depending on where you are trading your money. Meaning did you do it in a 401K, Roth IRA or Brokerage account for example. They all have different rules. The rate of capital gains changes over the years depending on law makers so I cannot cite those numbers here you have to look them up for yourself, the IRS will have this information for you.

Definitions

I am using terms you are not familiar with in context on purpose, I will explain what they are here:

• Holdings – A collection of different investment vehicles that you own. Stocks, Bonds, CDs etc…
• Position – When you have purchased any quantity of a stock.
  • You bought Microsoft stock
• Exposure – When you have purchased a stock directly or indirectly.
  • When you purchase an ETF you have indirect exposure to every stock that ETF is composed of.
    • You buy the S&P500, you have indirect exposure to Exxon-Mobile whether you like it or not.
  • When you purchase a stock directly, you have direct exposure to that stock.
    • You bought Apple stock, you directly purchased it.
• Tax Lot – Every purchase you make on a stock. Including automatic purchases made by dividend reinvestment.
  • You have 154.67 shares of stock CAKE. You bought them as 100, 54 and 0.67 were dividend reinvestment – that’s three tax lots. Each tax lot will be scrutinized individually as short and/or long investments by the IRS.
• Market Correction – this is when the S&P500 loses a lot of value quickly and suddenly. This is lovingly referred to as “a market correction” which is just an excuse for saying that too many stocks were over valued. This too is a very complicated topic, but at its surface level it just means there was a dip in the market. You buy the dip if you can.
• Points – just another fancy way to say dollars or value of a stock. Statements like, “The S&P500 has risen 10 points in the first hour of trading” just means it went up 10 dollars.
• Basis Points – this is not the same thing as points, this refers to the fed rate which is a percentage. The fed speaks about the interest rate in whole numbers, but really it’s fractions. So when they say something like, “The fed is going to increase the fed rate by 25 basis points.” this means 0.25%. That does not sound like a lot, but it can have some major implications depending on who you are in the game. For small time hobby traders it’s not a big deal, for people who are trading millions of dollars it makes a huge difference.
• Capital gains – the amount of money you made on top of your initial investment. You can also be upside down on an investment which means you lost money. However, none of it is realized until you sell. A much longer explanation of this is here: https://www.finra.org/investors/insights/capital-gains-explained
• Realized gains or losses – Your gains or losses are not realized (made real) until you sell your position. When you make a sale this is what is considered a taxable event. That’s why it matters if you have a long or short position and what type of account you are doing the selling in.
• Security – another term for a financial asset. Basically the same as an investment vehicle.
• Equity – another term for common stock.
• Volatility – how erratic the price of a security is. This is a gross over simplification of what this is, but for beginners I think this is fine. Volatility is absolutely necessary in order for meaningful trades to take place otherwise you would have what is known as a stable security and those are incredibly boring. Remember, safe is boring and low risk. Higher volatility is more exciting and higher risk which has a higher reward. Without volatility there won’t be price swings and you need that in order to buy the dip. Hence, buy low and sell high.
• Core position – this is your main position. Meaning, it’s what you are investing in outside of riskier investments. This would be things like cash, target date funds, high yield dividend ETFs, some bonds or even a Robo-Investor.

The terror index

It would be remiss of me to speak about the S&P500 and not explain what the VIX is.

Do NOT attempt to invest in the VIX. That’s for professional and experienced traders only. However, it is a marvelous indicator just like the S&P500.

The Volatility Index, sometimes referred to as the Terror Index and most commonly called “The VIX” is another market index that measures market volatility. I am not going to get too deep into the meaning of this because there are plenty of resources out there that will explain it better than I will. What I want to focus on is how to use it. I am not even going to explain how to trade it in it because YOU SHOULD NOT. It is VERY DANGEROUS and you could lose your whole investment in the blink of an eye. I am not joking.

How do you use the VIX?

You use the VIX by observing its values along side the S&P500. They should in most cases be the inverse of each other. When the VIX is a low number, then that means trader sentiment and morale is good. People are not panicked and they are not scared. However, when the VIX is a high number, then that means something economically is occurring which is usually not a good thing. Generally, before a recession occurs, the VIX will shoot up to a very high number and that means traders are panic selling. When panic selling occurs it makes the market take a nose dive, which means that the S&P500 will reflect that sentiment. This is when people with iron stomachs need to make a decision on whether or not they are going to buy the S&P500 or other stocks because you buy the dip!

Examples of VIX values

Price	My interpretation
$5	The market is probably really boring. Everything is going well economically. Interest rates are low.
$10	Hrmmm… that’s weird. Is something going on that I should know about?
$15	Did another war break out?
$20	Did we just suffer a pandemic?
$25	Oh boy a market correction. Interest rates were just raised by the fed too, oh joy.
$30	We might be in a recession. Did the bond yield curve invert?
$60	Mass panic, mayhem and terror! Something is going very wrong and there are going to be major turbulence and head winds in the market. The fed has raised interest rates by 400 basis points potentially.

Just like the S&P500, you have to have experience with observing the VIX and keep your eyes on financial news. It helps to know what the fed chairman is doing too because when they change the interest rate it can impact many things up or down.

Getting started with an example configuration

To keep it simple let’s say you have the following accounts:

1. 401K
2. Roth IRA
3. Robo Investor
4. Brokerage

Here is an example configuration of how to handle your investments by account.

Account	Strategy
401K	Determine what percentage of your salary you can part with. Invest it into your company’s 401K using whatever investment vehicle they provide. I recommend just using their default target date fund and you forget about this investment. Let it run on autopilot.
Roth IRA	This is your personal pension fund. You could use a target date fund here, but I would implore you to find some other worthy investments that you can have a long position on. The S&P500 is a great choice if you can get it at the right low price. You would have to research and you can even take long term risks on single stocks, but I would not do too many. The more individual stocks you pick the more management you have to do. Try your very best to max out the cap on this account each year.
Robo Investor	This is a way to keep investing in your future outside of a tax shelter. Setup monthly or even quarterly payments to this account. That’s it. It’s on auto pilot and it will invest in the S&P500 among other things.
Brokerage	This is where you have fun. Remember, only invest what you can stand to lose. Investigate companies that sound interesting, do your research and make an informed purchase. Again, try to limit how much you buy because for each individual company stock you buy, you have to stay informed on how that company is doing in the news.

How do I actually do this though?

You have to decide on which brokerage is right for you. I can recommend Fidelity because I have been a customer for a very long time. I can tell you to just completely avoid eTrade as their user interface is terrible. There are many options out there, so get what works for you.

You do not have to open all of these accounts all at once, start slow and go at the speed of your choosing. The 401K and Robo Investors are the easiest options to setup first.

Opening up the Roth IRA (if you qualify) and Brokerage are not hard, but there is no automatic investing component here. This is all manual work to pick stocks and buy them.

The act of trading

Regardless of what you are investing in, outside of automated systems, let’s focus on just buying individual stocks. You will use a trade ticket or what is more commonly now called an “Order”. You should only perform what are called Limit Orders. A limit order, like the name implies, forces a limit for your transaction.

Examples

At the time of writing these examples (09/01/2024) INTC has been hovering around $22 a share.

• Creating a buy order of 100 INTC shares for a limit price of $19 a share.
• Creating a sell order of 100 INTC shares for a limit price of $50 a share.

In both cases, there is a limit there to protect your transaction. The other component is the duration. I recommend you just use GTC by default which is “Good Till’ Canceled” which is normally 90 days. This is a convenience feature for you so you can be hands off on your orders. They can expire though, so keep an eye out for the expiration.

How do I choose what to buy?

Unlike Jim Cramer, I cannot tell you what to buy because that would be irresponsible. I, nor anyone else, self proclaimed experts, custodians, active managers – the list goes on – cannot predict the future. There is no such thing as a SURE thing. However! There is reduced risk choices, which is why there is the saying, “No one has ever lost money investing in the S&P500”. This statement does not mean you will not lose money investing in the S&P500, it means it’s very unlikely if you play your cards right. You have to put in the work to do the research and formulate a story you are willing to believe about what might happen to your stock. Believe in your own hypothesis for logical rational reasons, not magic or baseless foundation. However, just like snake eyes on a roulette wheel, you might be side blinded by an unexpected news story or world event that tanks your stock. When this happens (not if, when), DO NOT PANIC and in my opinion you should not sell. Be stubborn, hold your stock and consider doubling down. Always, if you can, buy the dip.

Here is less of a non-answer

You need to pay attention to the news, specifically financial news. You need to look for trends and take risks on buying things that aren’t doing so well right now, but will more than likely rebound. It all revolves around “Buy low, Sell high”. Below are real world examples of trades I made. Each position I have is based on an educated guess or assumption. To date, I have not had any significant losses because I am stubborn and patient.

When	What	Why	Cost Basis	Sales Price	Sold On
12/20/2017	IVV	Market was tanking, bought the dip	$270	$440.09	04/21/2022
10/04/2018	IVV	Reinvestment	$290	$440.09	04/21/2022
03/16/2020	IVV	Market tanked again, bought the dip	$242.41	$440.09	04/21/2022
12/28/2020	ARES	The pandemic made it so that going to restaurants was basically impossible. I predicted that once the pandemic restrictions were lifted people would do revenge buying and I was right.	$49	$82.00	04/22/2022
07/21/2021	ARES	Reinvestment	$61.43	$82.00	04/22/2022
10/07/2021	ARES	Reinvestment	$73.88	$82.00	04/22/2022
12/09/2021	ARES	Reinvestment, but I bought too high. I was hoping it would skyrocket passed $82 and it did not.	$82.16	$82.00	04/22/2022
09/23/2019	EWG	At the time, the German economy was doing very well, so I bought into an ETF that tracked the German economy. I sold as soon as I started hearing about instability near the region.	$26.87	$35.16	05/10/2021
03/16/202	JD	Total risk, bought into an Amazon like Chinese based company named JD.com – bought low, sold high. I have low faith in the Chinese economy, so it’s not something I would ever want to hold on to long term. Shortly after I sold, the stock hit turbulence.	$36.89	$60	07/06/2020
08/24/2018	SBUX	I bought Starbucks because, at the time, before all of the problems they ran into with unionization and angry employees, I really approved of the CEO and the company as a whole. So I took the risk and it paid off.	$55.30	$94.00	01/28/20
05/10/2022	NFLX	Netflix was being punished by its investors for not having the right numbers they wanted. This was a total buying opportunity so I did a YOLO and it paid off nicely. However, I cannot predict the future and I should have held the stock longer because had I, I would have had a $700 per share stock at a major discount. I still bought low and sold high, made my 25% so I am not upset.	$185	$232	08/10/2022
01/30/2024	MCHI	I took advantage of the misguided hysteria that is the market at large. The Chinese stock market took a major hit and everyone stupidly said, “The Chinese economy is about to collapse and never recover.”; which I knew was a bunch of nonsense. I ignored all of the panic sellers, bought low and sold high. I got a small margin, but I don’t care because it’s still a very quick relatively low risk gain.	$36.70	$45.29	05/17/2024

Why purchase volume matters

Do not confuse the concept of your personal purchase volume with stock trading volume. These are not the same thing at all.

Always strive to buy as much volume as you can. I purposely did not indicate how many shares of each sale I made above to demonstrate a point. One of my favorite plays was the Starbucks play. It just happened to work out well, but I only bought two shares. That’s not impressive at all once you realize I only made $77.39 and it took 522 days to make it happen. That means I made about 0.14 cents per day for a 62.65% gain. Whoopeeeee! Now imagine if instead of two shares, it was a hundred shares or a thousand shares, that’s when you are making real gains. I’m still not upset about this because at the time I was piss broke and I could only afford to lose two shares worth of SBUX.

Now let’s compare the above example which had a very nice spread of a 34.77 points gained to the small point gain of 8.59 for the sale of MCHI. I bought one hundred shares of MCHI. I specifically buy one hundred shares when I can so I can exercise stock options if I need to for stocks that I am not sure how long I am holding on to for.

Options is a much more complicated and experienced topic I won’t be covering here. Just know that you need to purchase shares in increments of 100 if you want to play options. People new to the stock market should NOT trade options and you probably won’t be able to anyhow because you have to apply for that privilege with your brokerage.

I made out with a 23.41% gain of $859 over a 108 day duration, which means I made $7.95 a day doing absolutely nothing. This is a success story and my only regret is I could not afford to buy more. That’s always the regret, but you don’t buy more than you can lose.

What is stock volume?

Stock volume is the amount of stock traded in a given time frame. So for argument’s sake, let’s say the amount of stock traded over the course of one day, during regular trading hours:

• Regular trading hours are 9:00am to 4:00pm, Monday through Friday – this only applies to normies like us.
• After hours trading is what it sounds like and it’s only available to the Bourgeoisie. I’m half joking. Some brokerages offer it, but like everything else in advanced trading you have to apply to do it. The problem with after hours trading is it can massively affect the price of a security in some cases when everyone was sleeping except for the companies (Bourgeoisie) who have the power to make markets move. They are also known as “Market Movers” or “Market Manipulators”. This sounds like a conspiracy theory, but it isn’t and it’s a complicated topic I am not going to cover in this article.

The reason stock volume matters is because it’s what causes a stock’s price to fluctuate. It’s another contributor to price volatility which is neither good nor bad because you need this in order to take advantage of stock. It’s great to buy a stock at half price (sales price!) and it’s even better to turn around and sell that same stock for more than you bought it for. Buy low, Sell high. However, for this to happen you need people to participate in the buying and selling process. The number of people participating matters and more importantly the amount of volume these traders are transacting matters even more. One individual can move 10 units whereas another can move 10,000 units. You want these shifts because it causes all players involved to react to the changes.

You want to avoid stocks that have low volume because that means they are stagnant. Stagnant stocks are terrible for short term gains and are only really good for long term “safer” investments.

Examples of low volume

Imagine low volume like being on a sail boat with no paddles, no engine and no wind in the middle of a calm ocean. You are going no where fast and you have no idea when you will see land again.

• I once bought IYY and ONEQ at unfortunately the peak of their pricing. It was a mistake and I learned my lesson. I got stuck with these two stocks for a very long time and I basically broke even. The only benefit of holding it was I was getting dividends.
  • IYY is an ETF that tracks the Dow Jones – it has a pathetic average trade volume of 10/90-day 24K / 22K. This is such a low trade volume, that means the price does not move up or down very quickly, so it’s agony if you want to offload your stock. I learned this the hard way and since then I have started paying close attention to average trade volume.
  • ONEQ is an ETF that tracks the Nasdaq Composite Index and it has a 10/90-day average trade volume 218K / 273K which is also pathetically slow.
• One last example of a low volume stable stock is NTDOF better known as Nintendo. It has a horrific average trade volume of 10/90-day 744 / 5K!
  • To be clear, this is a great stock if you are looking for long term gains and stability. You can still collect dividends which is nice.
  • This is a horribly stupid stock to purchase if you are looking for short term gains, it’s unusable.

Examples of high volume

Imagine high volume like being on a speed boat, with a high powered engine, in the middle of the ocean during a hurricane. You are going fast, but I can’t tell you if you are going to reach an island of riches or sink to the bottom of the ocean.

Well if a range of 744 to 273,000 is considered low volume, then what is high volume? High volume is MILLIONS of units traded.

• The S&P500 industry sweetheart Apple (AAPL) has a 10/90-day avg. volume 40M / 62M. That’s some nice trade volume you can work with. Nice volatility so that when the stock market gets angry at Apple you can actually take advantage of the dips.
• In fact when you look at the composition of an S&P500 ETF such as IVV you will see that as of 09/01/2024 AAPL is the highest percentage weight making up the index at 6.88%. Only to be followed by other heavy hitters such as Microsoft, NVIDIA, Amazon, Meta and Google. These all have high trade volumes. So if you ever need an example of what is a good trade volume, here are your examples.

Dividends

I strongly recommend, that if you are buying a stock, it should provide a dividend. There are two reasons for this:

1. Never provide a free loan to a soulless corporation. They need to pay you for your loan.
2. If for some reason things go sideways and your position goes upside down / underwater / lost major value – then at least you are still being paid to hold that stock.

The rub

Companies are under no obligation to offer a dividend. That being said, even if a company does offer a dividend, they can stop offering it if they hit hard times (also known as head winds). A great example of this is Disney (DIS) – I have had a position in Disney since 2016. I made the prediction that Disney Plus would turbo charge their stock and I was wrong. Shortly after their blunders with Disney movies that fell flat, they pulled their dividend. I was annoyed, but what can you do? You wait and be patient. I doubled down on their stock again to make it worth my wait. I got it at a very big discount. Later, the market, like myself, had – had enough of their poor stock price performance and demanded a dividend again. The temper tantrum paid off and I am now receiving a dividend again. The point is, “Easy come, easy go”. That’s the rub.

All stock is garbage

This is the most important lesson. All stock is utter trash. Now there is always going to be that one person who has a What-about-ism to throw in here, but it does not apply to the regular Joe. For example, Berkshire Hathaway Class A stock is absolutely not trash and it’s very valuable, but it also costs $715,299.90 per share. The average American cannot afford to go on vacation, let alone spend $715,299.90 on a single share. Let’s say you did somehow buy one share, well you didn’t buy volume so I doubt your gains will be anything of significance. When a stock is this expensive, you can’t just look at the upside, you have to look at the downside too. Tying up this much money into one share could also fall in value and you are losing thousands of dollars if that happens. This type of stock is made for the Bourgeoisie and if you are Bourgeoisie you are not reading this article. So stop with the nonsense please.

The reason I say that all stock is garbage is because it’s only worth as much as you can squeeze out of it. It’s a brutal game of musical chairs where someone is absolutely going to be the loser in order for you to win. That’s what it means to be “The bag holder“, you don’t want to be the person holding the bag, so be smart and careful. Stock is worthless trash until you turn it into dollars. The worst position you can find yourself in, is having a lot of something that no one wants. Therefore, it’s in your best interest to get rid of it as quickly as possible in most cases.

Like I said before, never give a soulless corporation a free loan. If you are the working man, then you have been screwed by your employer repeatedly probably, this is how you get your revenge. You buy their stock at a low price if possible and sell it like the trash it is at a higher price to some sucker. Then, you can have the enjoyment of watching the CEO, CFO or whatever liar C-Level is on an earnings call spewing lies about how well their company is doing and making all kinds of promises they can’t keep for the sake of bolstering profits. Every time a company lays people off for the sake of boosting their numbers before earnings, you can take your anger and hatred out on them by offloading their stock for more than its actually worth.

Some people take it personally when I say all stock is garbage. I find it amusing at how upset they get about something they are an insignificant part of. Sure, by owning stock you are a part company owner and your voice is meaningless. You own 0.000000000000000000000000000001% of a company, why do you care? Never get emotionally attached to any stock, it’s garbage. Use it to make money and throw it away like the trash it is when you are finished with it. It’s the same thing these corporations do to their employees, so you should do it too. Follow their chiefly American example in putting money above all else.

This sounds hard

Yep, it’s hard and some people don’t understand why it’s worth doing. I have been asked, “Wouldn’t it be easier if I just go buy a rental unit and rent it out?” I mean yeah, sure, if you want to have a second job. I may not make very large margins all of the time, but you know what I did to make those margins? After a few hours of research I did absolutely nothing. That’s literally the definition of “Put your money to work”. I didn’t have to paint walls, fix plumbing or hear why a tenant can’t make rent that month. Instead I bought some trash for a lower price and then sold that trash again for a higher price. Honestly, I love trading because it’s fun and it’s something I can do at night after my work day is over. It’s absolutely not a second job, especially if you like it.

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