50 things I learned about the stock market in 2016
Everything I know about the stock market today is from reading blog posts, 160 character tweets, and looking at charts shared by thousands of traders and investors across the Internet. Almost all of them I only know by their digital names.
I don’t know if that’s awesome, or sad, or cool, or maybe just something fun and ephemeral.
But what I do find interesting is how this will potentially shape markets in the future. Especially how people learn about them. I’m not sure what the word is for my method of learning, but it sits somewhere between open source and bullshitting with people chatting from their smartphones. No other time in history have so many traders and investors been online networking, learning, and building financial products. This growth is probably only just getting started, too.
As 2016 comes to an end, I want to reflect on what I’ve learned about the stock market. I’ve made some really terrible calls throughout the year but I also got lucky a few times. In the spaces below, I’ve compiled 50 thoughts and lessons I encountered in 2016. I hope writing them down here will make me a better investor in the future.
Don’t let the news cycle influence your decisions ever
Hold the “biggest” names in the stock market accountable or else you might be a victim of this, or even this, or sadly also this
The Internet is awash with stress and anxiety for clicks and breaking stories — ignore it
You will either lose money trying to trade based on headlines or gain several pounds trying to stay up to date with everything that’s going on
Stock market hype always seems to be 10 years ahead of reality
Always remember 3D printing stocks and $DDD, pharmaceutical stocks and $VRX, and shipping stocks and $DRYS when assessing hype in the market
Story stocks are the most fun, but also the most dangerous
Don’t ever make a story stock a long-term investment
Don’t wait for a random idea to come to you
You need to develop your own method for screening and searching for stocks
One of the great mistakes is stumbling randomly across a stock pick
Don’t read the Wall Street Journal and think, “I should buy that too!” — if it’s in the Wall Street Journal, the move has already been made
It might feel like the world is melting down, but the stock market is still open
If, for example during election night, you could put your emotions aside just for a second, there was money to be made
ETFs and ETNs are not as easy as you think or lead to believe
Not all ETFs and ETNs are created equal — read the prospectus
Try your best to teach someone why you should never invest long-term in a 2x or 3x ETF/ETN
You yourself should never invest in a leveraged ETF or ETN
Prune your watchlist as much as possible
Your watchlist is where your next great investment is
Sector rotation is more important than any casual investor cares to believe
Look at more weekly and monthly charts
Never open a 1-minute, 2-minute, or anything minute chart again
Bears and pessimists are better at using social media than bulls and optimists
If someone says “P/E ratio” in their first few sentences while pitching a stock, don’t go near it
Use moving averages to smooth out charts and a stock price
Stop focusing on revenues and EPS, focus on free cash flow
They are starting to advertise the teaching of cash flow in Harvard Business School ads — that should tell you everything
Your greatest trades are the losers you cut the fastest
Your mental capital is just as important as your actual capital
Exercise helps your decision-making skills in the long run
Your health is the greatest hedge against bad investments — hey that was a bad trade, but dang it feels good to run all those miles boy!
Always remember the major indexes are weighted and sometimes just a few stocks can drive them higher or lower creating a somewhat “false” narrative
The best stocks are those that have barely any following on social media and the Internet
The hardest stocks to own are those that everyone keeps talking about all the time
Holding cash is very underrated among stock market participants
Holding cash is really hard to do if you follow the markets each day
You can’t buy dips if you don’t have cash
Cheap stocks can get cheaper, expensive stocks can get more expensive
Scaling into positions is an investment in time — never buy a stock all out, at once
Scaling into a stock slows down your decision-making
You will never go broke with proper position sizing
Don’t chase stocks
There are 5,000+ stocks in the stock market, trading 5 days a week, in a market that’s been open for 100+ years — think about that the next time you think you missed a stock
The best two skills you can acquire for your own growth as an investor (especially if you want to pass the CFA) are statistics and accounting
Being a trader is sometimes better than being an investor… A trader is better at exiting positions than investors
High frequency trading and algorithms need to be embraced — build your own, learn to make money against them, or learn how to ride with them
A stock’s current price is only as good as the amount of trading volume that got it there
Not following the Treasuries market is an error of omission
If you can combine technical analysis and fundamental analysis, you are doing something 99% of all stock market participants are afraid to do
