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This week we have: Riley from Young and the Invested!
Take it away, Riley!
My name is Riley Adams and I blog at Young and the Invested, a site dedicated to growing an online community for young professionals looking to improve their financial literacy and develop strategies to reach financial independence. I’m a senior financial analyst at a Fortune 500 company with a M.S. in Applied Economics and a licensed CPA.
Setting down concrete wins and losses felt turned out to be a great exercise. It caused me to reflect on my life and walk through a mental catalog of clear examples which fit each category. My favorite part came in distilling the lessons I had learned into applicable advice to the reader.
While challenging, I thank Mike for inviting me onto his site to share my wins and losses. Hopefully, after crystallizing these lessons in my head, I can more aptly apply them to my life. Maybe you can do the same.
Win #1: Buying Quality Stocks and Holding for an Extended Period
There are several platitudes you’ll come across in the investing world like “buy low, sell high” and “be greedy when others are fearful and fearful when others are greedy”. They don’t necessarily deliver actionable information because the advice is too general.
However, when it comes to piecing together an overall investing strategy, the phrases can serve as great guiding principles. One I came to appreciate early in my investing career was the phrase, “A rising tide lifts all boats.” In general, the notion expresses the idea of improvements in the general economy will benefit all participants.
When in graduate school, I made some spectacular investments which allowed me to buy my first home with the proceeds (win #2 below). These returns came early in the current bull market and resulted from learning from my past mistakes.
I still hold one of these investments and have been handsomely rewarded for staying the course. This buy and hold strategy has done a significant amount to grow my net worth.
But this clear win can lead to some false confidence and lead to some poor conclusions on cause and effect. This thinking will color my first loss detailed below.
Pick stocks you feel would win over the long-term and hold them to build net worth.
Win #2: Trading Quality Assets for Quality Assets
Following the win detailed above, I was able to take money out of some of my investments to put down 20% on my first home, a condo in the downtown near where I work. The purchase was opportune because I bought in an area which would develop and become highly desirable over the next 4 years.
The investment, however, wasn’t without risk. I couldn’t know for sure this would be the outcome I’d experience.
When it comes to investing, you’re dealing with one thing: the future. You’re attempting to assess probabilities for investment outcomes and deciding to invest based on your best assessment.
My initial investment in the property has tripled in the short time I’ve owned it while also providing me a place to live for two and a half years. But to get this place came with risks.
At the time, I held investments which delivered great returns and I worried about cashing those in to buy this property. Buying the condo didn’t necessarily represent a sure-fire positive return on my investment because this area of town had a spotty history.
The risk in buying the property was whether the area would improve and raise the desirability of my unit. I saw a lot of potential with a new high-end grocery store built just before I bought and a few abandoned warehouses turning into condo complexes.
My investment panned out and I’m very fortunate. But this property could easily have resulted in a costly investment mistake had the area’s redevelopment not taken root. I assessed what I thought would be a likely outcome and pulled the trigger.
There is no reward without risk. Think about smart investing in a way that minimizes mistakes instead of pursuing maximum gains. I took a risk buying a property in an area I wasn’t sure would improve.
Loss #1: Learning to Distinguish Between My Contributions and the Market’s
When it comes to investing, everyone stands to make money in a rising market and look like a genius on the ride up. But when the champagne runs dry, you need to take account of how much responsibility you bear for your returns and the general gift given to you by the market.
When I began investing at the beginning of this bull market, returns came easily. As I detailed in win #1, I found some quality companies and held on while my portfolio balance grew.
But as time passed, I found it more difficult to replicate these returns. My gains began to flounder as I moved into different investments and I couldn’t understand why these quality companies stopped providing such amazing performance.
As it turns out, when everything is cheap and valuations are at the bottom of the ocean, it’s important just to catch a fish. Most any one will do.
If the business can survive the economic downturn and come through healthy on the other side, just buying stock in this company at an attractive valuation will provide wonderful returns.
It’s when you think any quality company will deliver the same outperformance you get into trouble.
During a rising market, just buying good things while avoiding bad things can’t be the secret to investing success. More importantly, investing success requires paying attention to the price you pay.
Stated simply: it’s not what you buy, but what you pay.
There’s no asset that is so good that it can’t become overpriced. There are few assets which are so bad they can’t be underpriced and become a bargain.
Learning how to manage this dynamic in a rising market is crucial. Mastering this is the key to investing success.
I learned this lesson the hard way. I mistook my previous performance as entirely a result of skill when in fact, these companies were underpriced and beneficiaries of a rising market.
Loss #2: Giving Up on Learning Spanish
When I was in high school, I had dreams of one day visiting a Spanish-speaking nation and being able to converse with the residents in their native tongue. I took 6 years of Spanish classes while in high school and college and got to a point of elementary school literacy.
I never had the best pronunciation but I could read and write at a decent level for my years of coursework. The moment when I felt I had made a mistake came the summer between my sophomore and junior years of college.
I had worked with a college counselor to identify any study abroad opportunities which might help me immerse myself in the Spanish language for a semester. It turns out we had a partner school located in Guanajuato, Mexico which would have fit my needs well.
The problem came when some of the course credits wouldn’t transfer back to my college and would most likely have delayed when I could graduate. While I could make up some of the credits during a summer semester back at my home school, some of the courses required in my major only came available once a year.
My choice at the time was clear: study abroad and likely become conversationally fluent in Spanish, or risk trying to make up courses in my major without a guarantee enough students would enroll in a course to have it be offered.
I elected to finish my degree on time without the risk of staying for an extra year. This decision served as the breaking point in my formal Spanish education. I continued my conversation labs through my junior year but never took another Spanish class.
When I made the decision, it felt wrong to give up on something I’d wanted for a long time. I easily could have continued learning Spanish informally through watching YouTube videos, listening to Spanish-speaking radio and television stations, and attempting to read novels written in the language.
Instead, I didn’t. I took the easier path and just abandoned trying to learn altogether. I know choosing to stay and complete my degree on time was the wise choice considering my final year wouldn’t have been covered under scholarships. The fifth-year would have cost me considerably, despite my knack for finding scholarships.
I couldn’t have known it at the time, but lady fortune turned my way when she led me to meet my wife, an Iranian-American who speaks Farsi. She and I both have a strong desire for our future children to learn the Farsi language. Now, I plan to take advantage of this learning opportunity and set my sights on learning Farsi. It isn’t Spanish, but it is another language.
Wow – that’s quite the twist of fate! I love the point you make of stating that, “It’s not what you buy, but what you pay.” 100% true in investments of all types. Pay attention to your due diligence, folks! Speaking of you all (kind listeners), what stood out to you most about Riley’s story? Let us know in the comments below and we’ll keep this discussion moving forward!
Thanks for reading!