This article goes over the first year of my investing expedition, how I got started, what I learned, and what helped me through my journey. I am writing this blog to those who are either nervous to invest or don’t know where to start. I sure as hell didn’t know at first, but I have learned a lot in my journey.
Affiliate Link Disclaimer: Some of the links are affiliated links with Public and M1 Finance. As a member of their platform, I earn a small portion if you click the link and sign up with them. I enjoy these companies and would not recommend them to you if I did not believe in their mission and platform. Thank you!
Financial Disclaimer: I am not a Certified Financial Advisor (CFA), I am a meteorologist. The blog posts about investing are my opinions and for your entertainment purposes. They should not be considered financial advice. Investing in the stock market is risky and you can lose money. If want to invest in the stock market, or have questions about how or where to invest, please seek a CFA.
Growing up, I knew investing in the stock market, real estate, or even collectibles was important to grow wealth. Before getting my first job, I collected antiques with the theory that in 20+ years I could sell them for a profit. The theory was to make money without doing work, what the financial world calls passive income.
There are four key reasons why I started investing. First, I thought it was cool. I thought it was fun and interesting to own a part of a company like Apple or McDonald’s. Cryptocurrency was the hype, and growth stocks like Tesla and Netflix were at their peaks. Seeing the five-year past performance and the growth of these companies made me want to try to make a profit of my own. This leads to the second reason, making money. There is no easier way to create generational wealth and become a multi-millionaire than to invest in the stock market.
Third, especially in today’s world, storing all of your money in a savings account is not wise and you are missing an opportunity. Yes, your money is safe, it’s liquid, and you can move it around. However, storing all of it in a savings account with a 0.5% yield will leave you with a low total return, only making you a few dollars compared to hundreds. Fourth, I wanted to retire early (this was a lesson later learned), and investing in the stock market is key.
There are several good stock brokerage platforms where you can make an account in a matter of minutes. A few examples that I like are Public, M1 Finance, Webull, Charles Schwab, Fidelity, and SoFi. The important first step would be to research these platforms. Learn the pros and cons of the platform. Ask questions about the company and platform. Do they charge fees for purchasing a stock, do they allow you to reinvest dividends, do they have an app (excellent addition to have), do they have promotions (get free money!), can you set up different account types, and can you purchase fractional shares (parts of a stock)? These are all questions I asked when researching and learned to ask during my journey.
Treat your platform like a vessel, this platform will drive you to your destination, and it is important to pick the right one for you. You can move your money from one brokerage to a brokerage, but it can be troublesome. They can charge a fee for transferring to another account. You will learn quickly whether or not you like the platform.
In the end, I chose the stock trading brokerage called Public (this is an affiliated link where I get a small kickback if you sign up with my referral code/link!). Public charges no fees to invest, you can choose to have your dividends be in a reinvestment plan (DRIP) (this is very important and will likely be explained in another blog), the platform is simple and user-friendly, and you can buy fractional shares. I have enjoyed Public’s platform during this past year and will continue to use it in the future. The link above is an affiliated link sign up today and get a free slice of a popular stock between $3-300!
Truthfully, I started to invest once I had a full-time job and was not living paycheck to paycheck. This is not the case for everyone, but I did not feel comfortable investing until I had disposable income and fully understood the distribution of my paycheck at the end of each month.
When you first start your journey in the stock market, you don’t know what you are doing. You can google how to invest in the stock market but will end up with hundreds of methods or ideas, many of them being terrible. The result is being overwhelmed.
I started by trying to trade penny stocks. Find companies that trade for less than one dollar, wait for the stock volume to go up, and sell for a profit. I lost money instantly. I didn’t understand when to buy and when to sell. I kept buying companies and kept losing money. I didn’t have the time to watch the company all day, and after a while, I got frustrated and tried a different method.
Cryptocurrency (crypto) was at its peak in value in October 2021. Crypto, like Bitcoin and Dogecoin, was the hype. Many had become millionaires, and if you didn’t even have a least a few bucks in some kind of crypto, you felt like you were missing out. I owned some crypto from October 2021 through March 2022 but watched it fall and crash. I tried day trading crypto, but again, I had no idea or the time to know when to sell or buy. In November of 2022, I am glad I stopped as the crypto market crashed.
I will never own crypto again because as Warren Buffet puts it, there is no real value behind it. Meaning, if you buy a farm you have land and product, if you buy crypto you have code (you cannot touch it or see it). It is also not regulated like stocks are. Meaning if you have money in a crypto brokerage, and if that company goes bankrupt, your money could be gone forever. The point being it is gambling. You can lose hundreds of dollars if not careful. So be cautious if you venture into the crypto world.
While trying to day trade crypto and penny stocks, I came across dividend stocks! Boy was I excited. For those who don’t know what that is, here is a simplified explanation of what a dividend is. If a company has hoards of cash laying around or they have positive net earnings (profit minus expense), they have two main options. First, they invest the money into growth for the company, or second, they pay a portion of the money back to the shareholders in the form of a dividend. The dividend is a set portion (yield that the company will pay you). Dividends are wonderful, however, they can be a trap. Leading us to the “Dividend Trap”. I was hooked on finding the cheapest companies that paid the highest dividend. It felt like the perfect ideology. However, I learned it wasn’t for me because I learned you have to pay taxes on the dividends you earn and that these companies can also go bankrupt if you pick the wrong company. Meaning you lose all of your money!
I started to become scared because I didn’t know what to do with my money or how to invest it. I did not want to blindly gamble and lose my hard-earned money. All the methods I tried I lost money and I became anxious about my next move.
However, it wasn’t until I found Fastgraphs on YouTube which helped me learned about how to invest. There is a lot of terminology in the next paragraph, sorry! I will provide links to helpful articles that go into detail about each term.
I started to learn about the P/E ratio (the price of the stock divided by the earnings per share (EPS)), compound annual growth rate (CAGR), dividend growth rate, overvalue, undervalue, fair value, dividend kings or aristocrats (go to the archive and click through each type!), expected future 5-year EPS growth rate (growth rate of the EPS in the next five years), and the list go on. I don’t know how I found this YouTube channel, blind luck I guess, but Fastgraphs is a website that allows you to quickly study stocks. You do have to pay for the good stuff, but they are running a great sale for a yearly subscription (I am not a sponsor, I just like the product!!). However, Chuck Carnevale who runs both the YouTube channel and Fastgraphs is a great teacher that is extremely active on his channel. Please go subscribe and watch, it is worth your time if you want to learn and get better at investing.
When I began to watch his videos, I started to fundamentally understand what a good company looks like in terms of numbers, what earnings or stock price should be like, and what a good total return is. It saved me and helped me go in a new direction. Although I learned a great deal from his website and YouTube Channel, I began to have a new anxiety, about when to invest.
With Chuck, I was able to gather and analyze great companies. My problem, however, is that I didn’t know when to buy the stocks I liked. I learned that you don’t buy a company until the intrinsic value of the stock looks attractive. Such as buy when the P/E ratio is below 15, or when there is a divergence between the stock price and the earnings (aka buy the DIP). This didn’t help me, it made me uneasy and I would look at the market throughout the day going into the night. I would consistently go back and forth about whether I should buy today or wait to see if it goes lower. What if it doesn’t, what if the stock price drops another 15% in the next month?? What if a country invades another country, and the market goes down by over 30% in the next 5 months? These thoughts lived in my head 24/7 and I would stay up and on the computer for hours. I started to go crazy, to be honest, and my finance can attest to that
Additionally, I ran into another problem, how much to buy and again, when?!?! I luckily had instances of pretty damn good timing this year. Beginners luck, eh? Buying great companies at attractive value is the foundation of all great value investors, but how do you know that the bottom has fallen for a stock? For example, I bought a good amount of Costco and Dollar General when they dropped in early May, and then a month later went up by 15%. However, I also had some mistakes. I bought a lot of Target at the start of May and kept going down for the month. Then in mid-May, it dropped negatively by 25%. My stomach dropped as I had lost over $200 bucks (that, at the time, was a lot for me). If you are a normal person like me with a 9-5 job, you don’t have thousands in cash laying around waiting to invest. Combine with the fact you cannot always time the market or individual stocks and you have limited cash to invest, what do you do? Well, I found another YouTuber and his channel in late May and was then closer to reaching sanity.
There is a YouTube channel called Dividend Growth Investing that is run by a person named Jake. His channel is about dividend growth investing and living off your dividends. Jake’s channel laid down a foundation, gave me tools to research stocks, figure out a plan, and most importantly, his channel helped ease my nerves while investing. I learned about the meaning of the term Financial Independence Retire Early (F.I.R.E), what dividend growth investing means, how to research stocks, and setting up my portfolio. He taught me how to dollar cost average (DCA) into my portfolio each week with a fixed contribution of cash. This allowed me to know exactly how much I was putting into each stock and how much I was investing each month; this also helped me with budgeting my monthly paycheck. If you are interested in investing, achieving the F.I.R.E movement through living off your dividends, and making generation wealth, then please go check out his channel. He is the best financial Youtuber for regular folks. After watching a few of his videos, I gained control of my emotions, an essential part of investing.
One additional struggle I encountered was making my portfolio. There are tons of great companies to invest in; for example, Apple, Microsoft, Coke, Pepsi, and Waste Management. There are also a million different combinations, the distribution percentage for each stock, that you can make to have a large and handsome total return. I knew that dollar cost averaging was the best method for my lifestyle, but I had so many more questions! How many stocks do I own? What is the best allocation method? Do stocks with a higher dividend growth rate (another blog topic) get the higher allocation? How do I get the maximum dividends in 20 years by using the dividend growth investing method? These types of questions filled my head because I plan to retire when I am 40 and live off the dividends as my income.
After spending 3 months staying up late and running a thousand scenarios, I was able to relax when I considered these six metrics and a quote. The quote is, you are going to mess up when you start, but it is good to mess up at the beginning and learn from it than not making mistake at all. The following metrics are ranked in order, meaning the first metric holds more weight than the second metric for why I own and invest in this stock. First, I ask if I am comfortable owning this stock for 30+ years and do not feel the need to monitor the company every quarter or year. A set-it-and-forget-it mentality was what I was aiming for. The inner parts of this first metric are does this company have a moat and can it withstand recessions? Second, do I understand how the company makes money each year? Third, what is the total return in the last 10+ years, and what is the average dividend growth (using 3, 5, and 10-year dividend growth rates)? I wanted a company that had at least a 10%+ compound annual growth rate (CAGR) and an average dividend growth rate of at least 8%. A use case is in dividend growth investing. Compounding over long periods with high returns means more money, so these two parameters matter when investing for the next 10, 20, or 30 years.
Fourth, does this company have debt, what are the earnings like, and have they grown? If so, how much and what type of debt do they have? Have the earnings per share grew more than 6% in the last 3, 5, and 10 years? I like companies that have low debt, but some debt is fine as long as they have enough cash to pay it off in the next few years. You want a company that has continuously beaten its earnings estimate in the last 5 or 10 years, and a company that is making a profit! The fifth metric I use is called the payout ratio in a stock. The payout ratio is the total dividends paid out to the shareholders by the company divided by the net income of the company. Here is a good article to learn more about this financial term. This is an important parameter to use when screening for a stock as it tells you whether the company is paying more than they make. Seeking Alpha is a great resource and has a great platform to compare companies’ current payout ratio and their 5-year average payout ratio. Lastly, the sixth metric I use is the expected EPS average growth of the company in the next 3-5 years. I use Zacks, CNN, Finviz, and Yahoo to get an average. This also helps me to determine if it is time to sell or trim holdings if the stock is not performing well.
After listening to Jake from DGI, learning the technical terms from Chuck and Fastgraphs, and listening to Joseph Carlson and his two YouTube Channels, I came to ease with investing. Currently, I invest in 24 stocks each week with a fixed contribution. I also invest into my work’s Roth 401k, and in an M1 finance account (Sign up today and get $10 for free!) which I call “Funds for Fun” to help with future costs like a down payment on a house or car. You can check out this Googlesheets link to see which companies invest in, which ETFs my finance invests in, my Roth 401 allocation, and my “Funds for Fun” portfolio that I am using to pay for future expenses. You can also check this website called Track Your Dividends (I am not a sponsor, but use and enjoy their product) to freely track the dividends of companies you invest in. You can create multiple portfolios, and see the future value, diversification, and next upcoming payment of your portfolio. This is the main website I use to track my annual income and the future value of my portfolio. Sign up for free and effort start to track your portfolio. This link will send you to my finance and I’s holdings, 401k, and Funds For Fun account to see what we invest in and dividend income.
Future blog posts are soon to come covering topics of which dividend stocks I like, how dividend growth rate can set your FIRE date, what is FIRE, the different kinds of FIRE, and more! Thank you so much for reading!