Start early, practice often, study the masters, and enjoy the pursuit.
If I was to condense everything I’ve learned throughout my career into a single tweet, I don’t think I could do much better than that. And there’s still seventy characters to spare.
However, I’m usually less inclined to mention the fact that I ended up doing the complete opposite for the most part. And although I could argue that the character count is against me, I’ve begun to realize that some of my more reckless investments have helped me to become the investor I am today.
Growing up in Dublin, Ireland, during the Nineties, I couldn’t have been further from Wall Street.
But the surest way for anybody to either love or hate any given subject is to have a parent recommend it, and fortunately for me, my dad was extremely interested in investing.
It was pretty unusual to find a 21-year-old Irish student buying and selling shares on the New York Stock Exchange. But I had been offered the money to open my first brokerage account should I graduate from university, so my interest was piqued.
These weren’t my only motivations though. The internet — and all businesses related to it — were in their ascendency, and the three thousand miles between my house and New York was starting to shrink.
No longer did we have to make a long-distance call to a brokerage firm on other side of the Atlantic from the kitchen telephone. Access to a broker, plus a wealth of stock information and news, now came from the comfort of my Dell desktop.
As it happens, the first stock I purchased online was Dell — which went on to grow about 1600 fold between the first day and last day of the decade. To put that into perspective, anyone with the foresight to invest $2,000 in Dell in 1990 would have seen their investment grow to $3.2 million before the millennium had they held on.
In that example lies so many of the fundamental rules of successful investing — none of which I recognized at the time.
As a new investor, I was enthralled by the fast feedback I was getting on my investments, not to mention the non-stop commentary that came flooding onto my screen. Within seconds of buying a share, I could track its performance and see if it was moving up or down.
Swayed by all the noise, I ended up selling Dell — along with some other good investments — way too soon.
But this was the late nineties, and every day brought another exciting company to invest in. My portfolio was full of stocks that promised massive growth based on all the hype that surrounded them.
There was Pets.com, an online marketplace for all things pet-related that received around $300 million in venture capital — including a 54% stake from Amazon. Or Flooz.com, a company championed by Whoopi Goldberg that wanted to establish a form of online currency (you know, as opposed to actual money).
JDS Uniphase was a long-established optical company that went on an acquisition binge as investment came flooding in. And then there was eToys, an online toy merchant that was once valued at $8 billion.
There were so many stocks to buy that my bank account couldn’t keep up. So I took advantage of the facilities offered to me by my broker and started buying stock on credit.
Or to put it in actual terms, I was now buying shares with money that I didn’t own.
I was completely caught up in the hype — not to mention the perpetually rising figures in my portfolio. I was buying stocks on a whim, doing very little research, and borrowing money to buy more.
But this came to a grinding halt in May 2000.
I was at an ‘away-day’ with colleagues (I still had a 9 to 5 job) at the Mount Juliet hotel in the Irish countryside. But the idyllic surrounds were the last thing on my mind. The market was beginning to sour, and I was desperately trying to access my brokerage account on a dongle device — a mess of wires held together on a spit and a prayer.
Eventually, the gears clicked and I got through to my account — just in time to see everything being wiped from my portfolio.
If a cold sweat is what most people go through in a moment of sheer terror, then I was going through an Arctic rinse. I had read about the Great Depression before, and I knew that the market was prone to dips every so often — but never could I have imagined the reality of watching my money disappear in front of me.
To make it worse, there was nothing I could do. I was barely connected to the internet as it was. And besides, I had been locked out of my account. I had borrowed money from a broker to buy these shares, and as soon as they realised that there might be no limit to how far the stocks would drop, they removed me from the equation in order to recoup the loan.
The theory of Loss Aversion hypothesizes that the pain of a loss is twice the pleasure of a gain. I had experienced the satisfaction of my portfolio going up and up for the past few years.
Now it was time to face twice the heartbreak.
In the weeks that followed, I lost a lot of theoretical wealth — not to mention a lot of sleep.
But I still had one saving grace — my age.
I was only 26, with no mortgage and kids to look after. And despite my losses, I found myself hooked on the power of investing.
Besides, if your house is destroyed by a hurricane in the morning, what do you do? Or rather, what can you do? You can take some time to mourn your losses and pick through the wreckage, wondering what the hell happened.
But eventually you have to pick up the first brick and start rebuilding.
So I reevaluated my approach. I looked around and noticed an entire generation of investors that didn’t suffer the same losses as me. Why didn’t the crash affect them as badly? What could I learn from their approach to investing? And, most importantly, how could I ensure that I never put myself in this position again?
I decided to start again — smaller this time — and gradually build as the years went by. Not only did this mean that my investing was limited to the few bucks I had to spare at the end of every month, but it also helped me to avoid the trap of buying stocks on credit.
I tried to treat every stock I bought as an interesting story. Instead of buying shares in a company that I had little knowledge or understanding of because some analyst had told me to, I did some research of my own. I immersed myself in the history of the company, got to know everything I could about the CEO, and tried to determine if he or she was a person I could trust. In short, I began to invest in companies with real business models.
My previous investments had been disasters. Having IPO’d at $11 per share, Pets.com went into liquidation at $0.19 per share. Flooz exhausted $50 million in venture capital before it finally rolled over and died. JDS Uniphase — which fell 99% from the price I bought at— dropped from $153 per share to just under $2.
Instead, my new portfolio now included Netflix, who were posting DVDs out to customers at the time. They might have seemed small-fry back then, but they had a comprehensive long-term strategy to deal with the rapidly changing media landscape.
Under Armour was another one that I added a couple of years later. The company was founded because CEO Kevin Plank was tired of having sweat-soaked shirts after football training. Now, they are one of the biggest contenders to Nike in the U.S. sportswear market.
My final tactic was to let my portfolio do most of the work. One of the main reasons I didn’t want to invest in property was because physical assets need too much looking after. There are walls to paint, drains to unblock, and lawns to mow. The lawn of a stock portfolio needs little mowing — the longer you leave the grass to grow, the more likely your profits will too.
In 2014, I had my investing history checked by a global auditing firm, which looked at every single stock I bought or sold over the past decade. I averaged an annual return of 24% per year for over eleven years — a far-sight from the investor I once was.
But how could a guy who started out so catastrophically now be in the green — not to mention have the audacity to launch a business that encourages others to do the same?
I could try to explain it in my own words, but I think a famous anecdote about the golfer Gary Player sums it up best.
For those of you who don’t know it, Player was once practicing in a bunker in Texas when a spectator stopped by to watch. The first shot he saw Player hit went straight into the hole, so he called out to Player and said “You got $50 if you knock the next one in.”
Player took him on, and then holed the next shot with ease. Seeing his odds lengthen, the spectator doubled up and offered $100 if Player could do it one more time. He accepted, and then calmly knocked the ball into the hole again for three in a row.
As the hapless punter peeled off the bills to give to Player, he remarked, “Boy, I’ve never seen anyone so lucky in my life.”
Player shot back, “Well, the harder I practice, the luckier I get.”
Stock investing is not a get-rich-quick scheme, despite how some people might treat it. It is a system through which people get-rich-slow however.
I learned this by doing it completely wrong for a significant part of my career. The lessons I learned did not come cheap or easy, but they were an absolute necessity in getting to where I am today.
I admire Gary Player, but I never took to golf myself. In fact, I would err more on the side of Mark Twain when he said, “golf is a good walk spoiled.”
But regardless of our conflicting interests, I think Mr. Player would agree that those times when you do everything wrong are just another step on the path that leads you toward your passion and life’s pursuit.