Why I’m Staying Away From Twitter (TWTR)

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If you haven’t been following Twitter (TWTR) since it went public in 2013, you may have missed the 70%+ fall from its all-time high. Since Twitter is a product that has a huge user base among Mainstreetwarriors, it has also been receiving a lot of attention as an investment opportunity. Let’s take a look.

Why Twitter could be a good investment:

  • It is priced significantly lower than it historically has been – Since we know that the market once valued it at almost 4x it’s current value, we know that this company has huge upside potential.
  • It has a huge existing user base – I could put lots of graphs here about the size of Twitters user base, but unless you have been living under a rock you have probably seen Twitter logos on websites, email signatures, news outlets, and more.
  • It has a presence in both Hollywood and sports – Hollywood can’t seem to get enough of the twitter platform. Many shows have live tweet sessions as an industry standard of the voice of the people. Twitters ability to broadcast live sports is also a huge draw for sports fans, especially during NFL season.

Why I’m staying away from Twitter (for now):

The company is looking for changes and the stock is extremely volatile- It is no secret that Twitter is entertaining possible buyout opportunities. The rapid changes in stock price are way too wild for a fundamental investor. In fact, the stock price dropped almost 20% Thursday October 6th after a report indicated Google and Apple were not interested. Could there be a new buyer that drives the price right back up? Absolutely.  The concern is that no one knows when that will be and there are only a handful of companies out there that would logically buy a multi-billion dollar social media platform. Until the future of the company becomes a little more defined, the upside benefits are more of a gamble than anything else.

The Bottom Line

I understand why Twitter has been on the watch list of many Mainstreetwarriors. The stock is relate-able, reasonably priced, and has distinguished features that make it possible for buyers to get a massive return. However, because of the unpredictable nature of the stock price, it’s likely that the rumor mill, not the performance of the company will be driving this stock.

What are your thoughts? Can you think of a reason to buy? Comment below!

Chipotle is Delicious (CMG)

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My first review is for Chipotle (CMG) for one simple reason — it is delicious.

Chipotle first hit my radar last year when they had multiple reports of E. coli outbreaks and struggled to regain customers since that time. Looking at the 10 year chart below we can see that the current value of the company is similar to what it was in 2013. You can also see that this decline has been going on for quite some time, but less severely since the initial reports.

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*Chart 1: Chipotle is trading at 2013 levels

Although Chipotle is still having trouble bringing back customers I think that there has been sufficient time for the price of the stock to reflect that. I also think that enough time has passed that customers will start returning. Again, I have faith that at the end of the day, Chipotle is delicious. Chipotle is so delicious that one of the victims actually asked for free food coupons as part of her settlements so she could eat more. If that doesn’t indicate customer satisfaction, I don’t know what does.

I was hesitant to buy Chipotle immediately after the outbreak because I wanted to see what kind of damage it would do to the stock and how customers would respond. This proved to be a good choice because I missed the major drop and the customer fallout that followed.

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*Chart 2: The drop in recent months is much less severe than the initial drop.

A little part of me thinks that I could be wrong and Chipotle will take some time to recover. In that event, I still don’t think that the stock will drop much more than where it is at now. Looking at the same 10 year chart you can see that the large drop has passed us. This means that unless there is some unforeseen event like an additional outbreak, my upside is that Chipotle starts returning to the highs we have seen before and my downside is it stays the same, or continues to decrease on the small scale that it has seen in more recent months. Maybe it will follow that downside, but that is a chance I am willing to take.

What do you think? Leave a comment and let me know!

Make a Dedicated Trading Account

There are 2 reasons I think you should have a dedicated trading account that is separate from your 401k or any other account.

  1. You can track its profitability separate from any impacts of company issued stock, dividends from old stocks, or other variables.
  2. If you use Robinhood, you can avoid getting your profits eaten up by trade fees.

Tracking Profitability: 

Tracking profitability is important. As discussed in one of my earlier posts, you want to have  a goal of at least 7% to make sure that trading is worth your time. In addition to this, if you’re doing something wrong, you want to know what impact that mistake has on your portfolio. If you are using an account that will have money being continuously deposited, it will be hard to track these things because it looks like your account is always increasing, even when you are losing money.

Getting around commissions: 

When I first started trading, I would trade in small blocks and the $7+ commission fees drove me absolutely crazy. Since most young professionals are trading with small accounts, $7 can easily add up to over a percentage of precious profits. I recently stumbled upon an app called Robinhood, which allows you to trade commission free. I strongly recommend you check it out here.

I will note that there are two downsides to using this app; You cant access it from your PC and you have a limit to the number of trades you can make in a day. That being said, Main Street Warriors don’t trade frequently enough for that to be an issue.

Starting at Square One

I plan on starting my Journey with $2,000. I arrived at this number because it is what I feel comfortable losing right now. I also feel it is achievable for most young professionals and a round number that is easy to track.  Although I plan to put more money in the market, I will limit this blog to the trades I make on the $2,000 and my thoughts at the time. My goal is to stay above 7% annually. This means I will make no other deposits to this specific account.

On the ‘See My Trades’ tab I will be keeping a detailed log of the $2,000 in trading funds that I have set aside for this blog. It is my hope that this will allow transparency for anyone who is interested in my actual results. I will show buy dates, sell dates, the amount traded, and the running account total for the entire $2,000 through the life of this blog.

Proof of Concept

Before I started this blog I decided to make a few trades just to prove to myself I wasn’t missing anything obvious.

A few years ago I deposited $1,000 in a IRA as a proof of concept that provided invaluable experience.

The first thing I got out of the way is signing up for the account and realizing that the money takes time to transfer from your checking. Seems reasonable, but could be frustrating if you’re trying to make your first trade immediately.

The second thing I learned is the difference in order types. Instead of seeing a buy and sell button, there are a few options for each (market, limit, stop quote, ect.) I can now explain these, but it took some lite googling to understand them.

The third, and most important thing I learned is how to actually make a trade. Although I already understood this as a concept, it was important that I went through this process from end to end with a small amount of money. It would be unfortunate to mess up a large trade because I clicked the wrong button.

There is the argument that because trading fees are high, it is hard to make a profit on such a small amount. However, these early trades were not about profit, they were just about making sure I knew what I was getting into.

Experiencing the trading process from start to finish demystified it for me and gave me more confidence down the line. Now if I see an opportunity I know exactly where to log in, how much time it will take my money to clear, and which order type I should choose. Because I started with a proof of concept, I can focus on the trade knowing that I won’t experience any technical difficulties.

Why You Are Not Qualified To Make That Trade

“90 % of day traders fail”

“You really think you can beat the big banks?”

“If it was that easy everyone would do it”

We have all heard some variation of “You are not qualified to make that trade”. It almost seems like the only people who are qualified are some variation of Ivy League graduates and mathematicians.

I don’t buy it, but even if I did my goal is not to make trades and succeed every day, it’s just to outperform the market over the span of a year, which is much, much easier.

Lets make some assumptions:

  • The average yearly return of the stock market is ~7%
  • I have money that I can lose without becoming homeless.
  • I also have money in my 401k.
  • The money I am using for trading would most likely sit in a 401k or a checking account anyways.

These assumptions are all crucial for trading as a young adult and are the basic tenants of personal finance for people of any age. Now Let’s break these down one by one.

The average yearly return on the stock market is ~7%

This is one of those sayings that is so common most just accept it as truth — but is there any data to support this? Yes, there is and this link does just that.

For those of you too lazy to click the link, it basically says if you control for price, dividends, and inflation, the returns between 1950 and 2009 are almost 7% exactly. It is important to know this number because chances are, if we just put our money in a index fund, we can get 7% with no work whatsoever.That means this 7% is the number to beat.

I have money I can use without becoming homeless

I would not even think about putting in the market that I cannot afford to lose. Personal finance 101 will tell you to have an emergency fund set aside. This should not be part of that emergency fund.

I also have money in my 401k

Even after I had an emergency fund put together, I also put money in my 401k. For me, this was beneficial since my employer has a matching program and I would be a fool not to take advantage of this.

The money I am using for trading would most likely sit in a 401k or a checking account anyways. 

Now that my emergency fund and future is adequately funded, I finally am able to assume some risk. I’m finally ready to jump into the markets knowing that no matter what happens, I’m going to be okay.

With all those assumptions aside I now get to the main point of my trading thesis — I just need to outperform the market. 

Seriously — the target is 7%. I’m not on a trading floor that expects me to generate consistent returns with weekly evaluations. I don’t have a boss that will fire me if I don’t hit 20%, and honestly none of this matters because of the money I have set aside.

I believe most traders fail because they are greedy and look for returns way out of their reach. I also think many traders fail because they have to meet quotas set by their bosses or a need to feed themselves.

A Main Street Warrior doesn’t have to worry about any of that.  This may be one of the largest advantages of trading to supplement your income — you can wait for good trades to come along and only take good trades.

Am I less qualified than the Harvard graduate who is sitting at Goldman Sachs? Probably, but I don’t need to show the returns he does, I just need to beat the 7%.

 

What does ‘Main Street’ mean

Main street is a colloquial term used to refer to individual investors, employees and the overall economy. “Main Street” is typically contrasted with “Wall Street.” The latter refers to the financial markets, major financial institutions and big corporations, as well as the high-level employees, managers and executives of those firms. You’ll often hear about Main Street vs. Wall Street in rhetoric about the differing goals, knowledge levels, interests and political power of these two groups. Some people think that what’s good for one group is bad for the other. For example, high executive pay is seen to conflict with ordinary workers’ pay and job security.

Read more: Main Street Definition | Investopedia http://www.investopedia.com/terms/m/mainstreet.asp#ixzz4HMYVz8sx
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A Main Street Journey

My name is Jacob. I am a 24 year old who lives in Santa Cruz, California and has spent the last 3 years working as a Financial Analyst at a tech company.

While my experience is in corporate finance(which has nothing to do with investing), I plan to start trading in my free time.

The plan is not a get rich quick scheme —  the plan is to make sound trades to supplement my income.

I hope to show that someone with no industry connections, no financial backers, a full-time job, and an average salary can succeed in the market.