My Investment Philosophy
My first article on The Filtered Media focused on my background and mindset on how to be a successful trader or investor.
I want to welcome you all to my first article on The Filtered Media. First, let me do a brief introduction to give you a little history of my business and investing background.
My name is Zac and I currently live in Hawaii on the beautiful island of Oahu with my wife and two daughters. I have a BA in Business from the University of Maryland (GO TERPS!) and have built two start-up eCommerce businesses from the ground up over the past 15 years. My investment history goes back roughly 10 years in stocks and 3-4 years in options. I am sure I will share more on my background throughout my newsletters but that is a quick snapshot of my history in business and finance.
I have lived it all momentum trading, blue chips, penny stocks, weekly lottos, meme stocks, housing bubbles, COVID-19, and many other small and large events that rocked the market. At the end of the day, there is only one thing you need to know and focus on. Once you can master this mindset and understand that there are different paths that can take you there you will truly become a successful trader or investor.
First I want you to go to your portfolio performance page and zoom all the way out to its inception.
The only thing you need to know is what we all strive for, and that is to ensure our graph on the performance page is going from the lower left to the upper.
Take a look at the two graphs below. Both are monthly snapshots of the $SPY. Let’s pretend they are your account’s P/L
The first is from 2002-2009 and is a 7-year snapshot (which may seem like an eternity for some investors/day traders) you likely lost some money over that time frame, likely right at the end. This would frustrate many and also cause some serious emotional trading to try and make back those losses by going outside your trading plan.
Let’s say you didn’t sell at the bottom of that dip in 2008-2009 and continued investing and stuck to your plan and we fast forward to today. That account is now over 300% higher than it was since you started and that downtrend that felt sickening in 2008-2009 is now just a blip on the radar along with the COVID crash.
The point I am trying to make here is don’t beat yourself up for a bad few weeks, or months, what matters is your process and mindset remains focused on ensuring that no matter where you started, over time you just want to be sure to see your account grow and that line continues from the bottom left to the upper right.
That being said how do I focus my investment strategy to align with the above mindset? Below are things you may have read on numerous websites or investment articles, but first I want to emphasize the importance of understanding all of them.
Have a plan
Adapt to changing market trends
Open a Roth or Roth IRA
Don’t fall in love with a company
Now the above is easy to write about and discuss broadly but let me tell you how I incorporate the above points into my everyday trading.
I currently hold 3 accounts (Roth IRA and 2 brokerage accounts) and manage my wife’s Roth IRA.
One of my brokerage accounts I use primarily for long-term leap options. This account is less of a focus day to day and once I find a company or sector that I feel is undervalued and there are options that are attractively priced I will open them in this account and only check in on them to ensure I don’t need to add or trim some contracts if price moves quickly in one direction or another from week to week.
The two other main accounts I treat identical in how I trade the only difference is account size. In both of these accounts, I average about 20-50 trades per day over the last year. In both of these accounts are also positions I have not sold or closed out in over 10 years. In my opinion that is the key to solid long-term growth. You will hear advice from traders to pick one style and stick with it. While that is great when that works with the trend, what happens when the market goes months or years without that style being effective? It is important to always have long-term stocks with a solid balance sheet that have years or decades of growth.
I plan on covering this more in-depth in future articles but I recommend the following steps to ensure you are building a diverse portfolio that can withstand volatile market moves.
Use options to take advantage of quick movements in the market (both buying and selling)
Take 20-50% of the profits you make from options trading and add to long term dividend paying positions
Always turn Dividend Reinvestment (DRIP) on (compound growth is underappreciated)
Invest in undervalued companies that have the potential to cause disruption to archaic and outdated systems (like today’s banking and payment companies)
Always have a plan and understand why you are making a trade and at what point or price target you should stay considering trimming or closing out your position. This included setting stop losses.
Separate your emotions from trading
Do not revenge trade to chase losses
Position size appropriately
Take a break from watching the markets 24/7 to reset
All the above are just small pieces of a very large puzzle that makes up key components of a successful trader or investor. I plan on touching on these in more detailed articles in the future but first wanted to give you some insight on how I approach the market in general and my mindset.
Let me know if you have any questions or topics you would like covered and I will be sure to write about them.