I've been celebrating in the stock market for four years and currently celebrating my first bear market. Here are the top 5 lessons that I learned:
1. I suck as an investor
Four years is not enough to become a good investor. I've only known a bull market. Only when the tides go down, you know who is swimming naked. We are currently in a bear market and only if I make good decisions right now that I'll prove myself to be a good investor. So far, my portfolio is still doing better than the market.
My total returns in the last four years is 53%, compared to 34% for the S&P 500 $SPX500 . My cumulative returns is 11.2% compared to 7.7% for the S&P 500. I am sure that I can do better than that. I can make +20% returns a year. The reason why my returns are so low is because of my first sixth as an investor where I lost a lot of money. If we ignore these six months, my annual return would be 24%. It shows that I am getting better but we cannot ignore these returns. I'm going to make mistakes in the futures as all great investors, Ray Dalio, Warren Buffett, still do but I hope that I will be able to reduce the probability of me making these big mistakes and you do that by investing in yourself.
2. You need some rules, principles and strategies
Whether you decide to be a day trader or a long-term value investor. You need a strategy. Don't do random things.
My strategy is to follow 3 rules:
i) Don't lose money - have a global diversified portfolio among different asset classes
ii) Don't forget rule number 1
iii) Buy low and sell high - buy stock asymmetric risk-reward
Having 500 stocks in your portfolio is not diversification if all these stocks are correlated to each other. That's why you see everybody who has been investing only in the S&P 500, now losing a lot of money. You need stocks in different countries and you need investments in different asset classes.
4. Invest in businesses, not stocks
When you are buying a stock, you're buying part of a business. It is not just some number on a screen that will make you rich. Ignore all these price fluctuations, noises and focus on the business. Right now, Skyworks Solutions $SWKS is crashing but if you think about the long-term, 5G is the future and Skyworks Solutions is going to win from 5G. What you should do is buy instead of panicking and selling.
5. Take your time
Don't invest too fast especially in this bear market. Nobody knows what will happen to stock prices tomorrow or next week or next month. If you see stocks falling, don't just put all your money to buy the dip. Take your time. If you miss an opportunity, you'll find other ones. There are stocks which have been on my watchlist for years. Will I ever be able to buy them? Maybe but it doesn't matter as opportunities always come if you know where to look.
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