I feel the need to start documenting what I invest in and why. I’ve been investing in one form or another since I was about 13 and started buying silver ingots and medallions from a local coin shop in town with money I earned from working part-time jobs. During the ensuing years I’ve developed both a philosophy and a methodology around investing that works for me. But in all that time I’ve never written down either of these. Why I invest, or what leads me to invest in the things I invest in, has always just been in my head.
These notes are meant to capture that philosophy and methodology – the Yin and Yang of my approach, if you will. They are intended mostly to keep myself honest in my investment approach and to provide me with a written down reference point should I find an adjustment is required. Have I always been drawn to penny stocks? Is this the source of my fascination with crypto? What is the origin of this? Is it still a valid philosophy?
This writing is not meant to be interpreted as investment advice, nor should anyone reading this follow my approach. It’s what works for me. It will probably not work for you. We’re different people with different goals, agendas, and emotional states after all.
My investing philosophy – or more precisely: my belief around the role investing plays in my life – has remained unchanged since I bought that first silver coin.
Investing, to me, is simply about converting money I earn from action into money I can earn from inaction. Passive income. Money making money. Nothing more.
My investment philosophy has a few guardrails, most informed by bad investment decisions I’ve made in the past. In no particular order, they are:
I will always have some diversification in both the category of investment and the risk profile of the investments I make. I don’t want all of my eggs in one basket, so to speak. This guardrail stems from my earliest investments. I only purchased silver in the early ’80’s. I still remember my first purchase. I walked into the coin shop with $200 (a fortune to me at that age) and walked out with 8 Liberty coins. A month later, the spot price on silver was roughly half what it had been. The price appeared to me to be in freefall. It was gut wrenching, but I dug in and purchased more on the way down (dollar-cost averaging!!), buying as often as I could. But it was never enough to make up for my initial losses. In the end I walked into the coin shop with about two pounds of silver and “cashed out” for about 1/4 of my total investment.
I don’t have hard rules around what percentage of my total investments are in which category. Segmentation ebbs and flows depending on my mood and what’s happening in the larger markets around me. I still invest in silver, my first love. But I am more diversified now.
Stocks and options and crypto, oh my!
I prefer stocks to any other investment vehicle. I have spent more time studying the stock market and simply feel I understand the mechanics better. Invest in what you know! I’ve dabbled in options and crypto currencies. I understand the mechanics behind these investments less, but the influence investor sentiment has on price looks familiar. I grok the emotional component and because of that I can create a methodology to incorporate them into my investment thesis.
I prefer growth stocks to blue chip investments. I prefer dividend paying stocks to non-dividend paying stock. Sometimes these two are in conflict with each other. When they are, I pick stocks where I understand the underlying business and how they make money.
I have a growing interest in P2P loan products like Prosper and SoLo. The mechanics are simple. I loan you money; you pay it back with interest. I’ve developed a method for managing the risk within my tolerance level and the returns have been consistently positive.
I’ve invested in real estate in the past but have hated every moment of it. I want passive income and being a landlord – even when outsourced – is the furthest thing from passive I’ve encountered. It’s just too much work! The closest I come to real estate now is by investing in REITs through DiversyFund.
I don’t invest in collectibles or artwork. Though I have and continue to spend money on both, it’s for pleasure. Since I have no intention of selling these items, I don’t consider them “investments.”
My investment methodology depends on the type of investment I’m making. Before I invest in anything, I first figure out how much money I’m willing to lose on the investment. This amount will differ depending on the type of investment. For example I am usually willing to lose 100% of any investment in an individual stock, but would not accept any loss on a real-estate investment.
See Stock Investing Methodology for details on how I think about stocks.