Things you’re doing wrong when buying stocks on your own
Lena Birse is a stay-at-home mom who loves buying tech stocks during market crashes. Jay Smith is a former pro gamer who switched from cryptocurrencies to blue chips. Heloise Greeff is a data scientist who uses machine learning to analyse trading patterns. And Mik Mullins is a retired hotel executive who's betting the market is about to plunge.
These four amateur traders use different approaches but have one thing in common: They're killing it in one of the wildest markets in memory, with returns ranging from 20 to 60 per cent this year.
While many institutional investors bailed out of the market in the early stages of the pandemic, retail investors have piled in and pocketed big gains, especially in surging tech stocks. The US digital brokerage Robinhood signed up 3 million new users in the first five months of the year, giving it 13 million total customers.
But playing the market is fraught with risks. To learn how to avoid pitfalls, Bloomberg News picked the brains of these four top performers on eToro, a digital trading platform regulated by the UK's Financial Conduct Authority. EToro lets people copy the trades of investors with proven track records, like this quartet.
They all believe newcomers make mistakes by not investing for the long term and by not diversifying their portfolios with at least 30 well-researched names. Here are the other mistakes they spotted.
Jumping In Without Testing Out Trading Strategies: When Heloise Greeff decided to plunge into the stock market in 2016, she did what any good scientist does-she experimented. Greeff used a "demo account" on eToro to execute simulated trades with $100,000 of fake money. She discovered straight away that trying to time the market and trade in and out of positions everyday was a bad idea.
Greeff loves looking for patterns in oceans of market data. When the S&P 500 Index and other benchmarks were hitting all-time highs late last year, the data was sending her a powerful signal: It was time to retreat. "I am a conservative trader so I liquidated 60 per cent of the positions in my portfolio, and while I missed the highs of January, I had peace of mind," she says. Since then, Greeff has waded back in. She's up around 20 per cent this year.
Chasing Hyped Stocks Instead of Doing Research: After dropping out of school at age 14, Jay Smith sought glory on the virtual playing fields of eSports. He became smitten with Bitcoin and other cryptocurrencies, as well as solar energy stocks. When the digital coin bubble popped in 2018, Smith's portfolio fell almost 54 per cent and he learned a painful lesson in the dangers of hype.
These days, the 32-year-old's bets are a far less racy mix: Chipmaker AMD and Microsoft, and this year he started buying shares in Home Depot and Lowe's, the home improvement giants. He does his homework on companies. "I spend a large amount of time reading product user manuals and watching launch events on YouTube. A solar company I follow recently held a training day online, so I watched to see how they install their equipment."
He's up about 50 per cent this year.
Making Big Bets Instead of Starting Small: A few years ago, after Lena Birse and her husband sold their heating business in Bristol, they decided to invest the windfall in stocks. Birse balked at paying fees to a money manager. She started small, buying modest stakes in household names, such as the UK retailer Tesco. Eventually, she grew confident enough to switch to high-octane stocks.
The mother of two teenagers splurged on a beachfront dream house on the Mediterranean and a London flat.
Investing Money You Need in Five Years: Mik Mullins says he felt like a blind, drunk monkey stumbling in the dark when he started investing in the early
2000s. Eventually, Mullins, a British expat in Singapore, found his footing by getting in early on companies that were disrupting global industries, like Facebook and Zillow. In
2012, he retired at the age of 42 from his profession as a hotel marketing consultant to tend his portfolio. And he advised friends to follow one primary rule: Never invest money that you're going to need for big-ticket items such as a house or college tuition. Mullins is a true believer in investing for the long term. He doesn't even like to look at his portfolio more than once a week.
Obsessively Checking Your Portfolio: It can be tempting to keep looking at the daily swings in your stocks' prices, but if you do this every day, it spurs panicky trades and losses.
Over time, Birse said she built a tolerance for risk. After the pandemic hit, she resisted the urge to panic. Instead, she bided her time and prepared to add to her positions in longtime "winners" like Shopify, the Canadian e-commerce firm that's skyrocketed 148 per cent this year.
"I used to turn off the computer during selloffs," says Birse, 50. "But then I wanted to be more active, more aggressive, so in March I steeled my nerves, waited three weeks, and then it was time to go shopping. It felt like the sale of the century."