Growing Wealth

Lessons on the path to financial independence

Adrian Jank, Aug 9, 2020

For me, the goal has always been the same, ever since I was 15 and was making my own money, how do I gain more financial freedom. Anshil is in an incredible position as a 24 year old. I wish I would have been more savy and had the platforms we have now, trading and investing in individual stocks wasnt as cost effective without robinhood.

Now, I am 39, married, have a mortgage, and have 2 incredible kids. I'm also in an incredibly privledged position. Both my wife and work in technology and design, which affords us the benefit of being able to invest in individual stocks. Over the years I have learned a lot and wanted to share a few key things.

Max out your 401k as early as humanly possible:

Everyone will tell you this in every article you read and you should do it. Why 5 years, if you max it out there is a good shot you'll have over 100k. And if you add nothing to it, it'll likely be 400k 16 years later. Even if you can't max out doing it for 5 years will give you a nice cushion of cash. Even if it just $1,950(about 160 a month) a year you'd have over 10k in 5 and 40k 16 years later.

However, after 5 years, only if you don't have matching and you can discipline yourself to invest the money on your own, then maybe manage everything yourself and start picking stocks (and put some in an index etf). You lose some benefits, but gain access to the money whenever you need it.

If you are maxing out and have money left over then open a Robinhood account and keep reading!

Time is your best friend:

My first time investing in individual stocks was at the start of the Great Recession. My portfolio of stocks lost 60% and it was depressing, especially becauae my wife had started grad school so the ability to add more 'dry powder' and DCA was impossible. My biggest bust was Citibank (C) it ended up losing 95% of its value, but I also had MSFT at 30 dollars a share. Sometime late 2012 I had recovered all of my money. Later I ended up selling MSFT at an average price of $108. A 250% gain on just the shares, add the dividends and it got me about 15% returns over 10 years, compared with 8% for the SP.

Truly Understand Your Risk Profile:

Everyone on every investing site talks about risk profiles, gives you surveys, etc. However, you can't know your risk tolerance until you actually lose money on paper. More importantly you will learn you aren't as tolerant as the survey and make mistakes, selling at a loss or after a big swoop down and then seeing a stock fly, is painful, but teaches you.

To truly determine your risk profile pick a high growth company under 15B that you've researched and have a strong belief in long term, then put money into whenever you can. At some point you are going to lose money, how you actually behave at 10%, then 20%, then 40%, maybe even 60% down will educate you.

If, with real money in the market, you calmy buy and never sell the first time this happens you have an extremely high risk tolerance and may want to see a doctor. What's likely to happen is you will panic sell at some point(I've done it!). The higher the percentage loss you panic sell at, the higher the risk tolerance you have and it's more about overcoming the emotional reaction around the paper loss. It's also important to know this might be different for each company you own. Buying AMZN down 25% in the middle of covid is easier than buying ENPH through multiple 50% haircuts and short attacks. Full disclosure I'm in both names long and the roller coaster on ENPH has been crazy but it's turned into a 125% gain.

Manage Risk Through Posistion Size:

This comes after understanding your risk profile and gaining experience. A massive position in a FANG company is less risky than a large position in a high growth stock that went public 1-3 years ago, or is on the upswing after falling hard for a few years. For each position you start you need to figure out how much dollar value am I okay actually losing because I was wrong and I need to sell. Then ask how likely is it that I will be wrong about their business. If you say the most you are willing to walk away from is 5k and there is a high chance you could be wrong (over 50%) then no more than 5k of your money should go in. The company can always prove itself (business wise not stock appreciation never conflate the two) and then add more money. I'm currently invested in a company where the risk of being wrong is extremely high (EVSI is the ticker). While I have 55% gains, I just added my last contribution until the company proves itself. This is by far the riskiest company I've invested in, but could also net huge gains as it's market cap is only around 100 million.

Volatility is your best friend:

Once your learn to stomach it, and you are in a high confident company you learn to love it (until you've maxed out your position and can't add to it, then volatility just sucks). Volatility is a period of sharp moves up and down and means a stock might get 'range bound'. These moves make it easy to accumulate without raising your cost. I've been in AMZN nearly 2 years and after their blowout earnings I am close to doubling my money. How? Well if you talk to Anshil he will tell you how excited i was about AMZN falling like crazy over 10 weeks in Q4 2018. I bought a significant amount of shares then. Then covid struck and I bought more shares but barely raised my cost per share. In 2 years of ownership I accumulated 70% of my shares in 2 periods of volatility that totaled 12 weeks of buying. Because of the volatility my DCA has consistently hovered around $1700 despite Amazon reaching all time highs multiple times before the covid crash. I'd like to add more but I'll wait :).

Embrace Concentration:

It's hard to have nearly your entire folio in 3-4 names. The ups are crazy, the downs are dreadful. Because I'm older I have a lot in more stable names AMZN and GOOG, but I have an outsized position in ENPH to balance it out. In the 2 + years I've truly started becoming an active investor I have gains of 43% compared to 17% with the SPY ETF and that is with some major mistakes a long the way!

Be Patient and Act:

If there is a name you like and a price you want it at (within reason) have cash or raise cash and buy it. I had wanted APPL for awhile but wanted it at under $100. Right after my son was born APPL started really fall broke $100. I liquidated everything in my folio at the time (except MSFT) and dumped it into APPL and few weeks later is was still under $100. 2 years later I sold my shares and netted a 112% gain after cap gains tax! I eventually used those proceeds to start buying AMZN.

Investing in individual stocks isn't easy and the risks are greater, but it can lead to much higher gains over the years. I've learned a lot on the way and have a lot to learn still!