Yes, you read that right. Over a period of 3 years, I regularly invested money with my Robinhood account. By my 3 year mark, I had put in $35k, and my account was $105k, a 200% return!! It started off when I received my first paycheck. After I covered my essential expenses, I had a good chunk left over. Week after week this started to add up, and I was happy with it. Soon, I started reading about investing, time value of money, savings accounts rates and other personal finance related things. At the time, I was also aware of Robinhood, so I downloaded the app.
It was Robinhood's simple user interface that got me into investing, along with watching the TV show Billions 😜. The simple process to buy and sell stocks was so easy and intuitive with Robinhood, but always seemed daunting with the existing options. The first stock I had bought was Facebook, simply because I enjoyed their product/service. I started off by investing a mere $500, and basically held the stock, and watched it for months.
I watched how the stock reacted to news, acknowledged the volatility and forward looking mentally of the market. It was interesting to watch how the stock reacted, or sometime overreacted to some negative news, and then quickly bounce back up, and go even higher. I started noticing the 'Buy the Dip' strategy.
Apart from Facebook, I tracked a lot of tech stocks because I was in the technology industry. All the FAANGs basically. Alongside, I would regularly spend time reading and understanding all about the world of finance from Investopedia, Motely Fool and other similar sites. This reading formed a great backbone of knowledge when I pick a company to invest in. Soon, I realized investing in the big names, is essentially delivering similar returns to that of the S&P 500. As an investor, I wanted to beat the market returns. That made it more fun for me.
After 6 months of conservative investing in big names, and lots of reading and learning, I made a point to leverage my knowledge of the tech industry to invest in smaller, unknown tech companies. It was at this point, around Jan 2018, where I invested in a company called MongoDB. MongoDB is a company that I discovered in one of my university classes, describing it as building revolutionary cloud data storage technology. I believed in the tech, and found out that the company was publicly traded. So I jumped in, at the time, the stock was trading around $28, having IPO'd in 2015. If you look at that company now, its trading at $220!! How awesome would it have been if I just held it all along?
My point here, was that I was able to identify that MongoDBs potential before Wall street did. My edge? Being in the tech industry and having conversations with other software engineering professionals.
Throughout my investing time, I would regularly deposit more money into my Robinhood account, as I received more paychecks. By the end of year 1, I had invested about $5000, and wasw up 40%. Most of my gains from year 1 was from MongoDB and Roku. Roku was another company that IPO'd in 2017, and in all honesty, I was lucky to discover it and jump in early. My push to invest in Roku came from reading tons of good material from Motley Fool about the TV company.
So what is my strategy? I call it 'Value Investing for Growth Stocks'. I try to identify undervalued growth stocks. With this startegy, it is also really important for the investor to have the stomache to hold a loss, and not panic sell. Growth stocks tend to move at an amplification of the market. If the general market falls by 5%, growth stocks may fall by 10%. For me, that is a buying opportunity.
Now, I am not saying that I perfectly time the market and buy right at the bottom, and sell at the top. This is where having the courage to hold a stock at a loss comes in. There have been numerous times where I have jumped into a stock, and it continues to fall, sometimes even for months. BUT, in my head, I have done enough research, and convinced myself that this company is probably not going to go bankrupt; it has a solid product, its top line (revenue) is growing, and 5 years from now, it will be worth more than it is today. So, if the stock keeps falling, I keep buying. What happened in my experience, is that the stocks usually finds a bottom, and either stays there for a bit, or bounces back at some point. Slack is a great example of this; My initial buying point was $30, but over the course of 6 months, it basically fell and found a bottom at $20. I kept buying throughout that time, lowered my average cost, and built up a large position. My average cost fell to $23. As soon as it started to rise, I started selling in chunks.
This is where I talk about when I start selling a stock. There is set quantitive rule that I use, but I usually follow some signs. If I have achieved a return of 15% or more, I started thinking of selling. I also notice if the stock is at an all time high. Also, I only sell in chunks, over a many many days. This is so that, if the stock keeps going up, I dont feel that bad on missed profits. It is impossible to perfectly time the market and sell at a high, and buy at a low. That is why I buy and sell in pieces.
Another example of holding a painful loss was with Zoom. I discovered Zoom during its IPO, and watched it. The stock did really well, and I was hesitant to jump in because it just kept going up. Right before its first earnings report, it was at an all time high of around $99, and right after the report it fell to $90. This tends to happen with growth stocks, there is just so much expectations for their earnings reports that traders think it is overvalued after the earnings report, sell it, price falls, but eventually bounces back. So, I bought Zoom at $90.
If you look at Zoom after its first earnings report, youll see that for the next 3-5 months, it fell and found a bottom at $65. You can imagine how I was feeling. But I relentlessly kept buying, as I believed in the company, its vision, its product, its flawless tech, and its growth. Lucky for me, the pandemic only spurred its growth, and the stock 'Zoomed' up to $150. This was one of my few ivnestments where I doubled my money. Homerun.
Another great investment of mine was with Shopify during the pandemic. For the longest time, I have wanted to invest in Shopify but could never find an entry point. The pandemic dropped the entire market in March 2019, and that was my buying point. I jumped into Shopify at $345, and within 2 weeks, it had already doubled to $700. This was probably my quickest homerun.
Some companies that delivered me great gains are MongoDB, Elasticsearch, Roku, Zoom, Slack, Datadog, and Crowdstrike. You can notice some commonalities between all of these companies; high customer and sales growth, minimal profit or narrowing losses (re-investing for growth), strong sustainable advantages, and most of them seem like acquisition targets for big tech.
The reason why I sell after achieving a certain % return, and not hold forever, is because I want to realize the profits, and then make heavier bets on other companies. This allowed me to compound my money. I used my profits to make more profits.
Now, this startegy that I have described is risky. Having a stable job allowed me to continue buying stocks as they fell, it gave me a constant supply of 'dry powder'. There were times where I was holding onto stocks like Slack at a 40% loss, only to buy more, lower my average cost, and sell when it jumped again.
One thing I make sure when I invest, is that I have enough cash in my bank account to live for the next 1 year. Its a good enough safety net in case something goes wrong. I always try to manage my stock vs cash ratio, and usually it is 50-50. This allowed me to be risky with my stocks, and make big bets.