Investing, What I Have Learned Over the Past 3 Years

09 Jul 2024 - Conan Mercer

Just a little over three years ago, the mainstream media got itself into a frenzy. If my memory serves me well, for about one week, any person engaged in Western civilization would have heard the words "GameStop" and "Short."

GameStop stock had been heavily shorted for a period of time. Roughly speaking, the valuation was sitting at about 17 dollars per share. The details are unclear, but it appears that someone or some people noticed this heavy shorting of GameStop stock and proceeded to "squeeze" the short. What resulted was a 30 times increase in stock price to 500 dollars per share in a one-month period of time.

This led to any entity or person that had short positions on GameStop receiving a margin call, which is a demand by a broker for an investor to deposit additional cash or securities to cover potential losses. The larger the short position, the larger the margin call, which is not good if you had a substantial short position.

The result of this squeeze was a swift and loud response from all corners of the media. I remember a US talk show interviewed a guest who was visibly jilted and adamant that the pesky short squeezers must be held accountable for their dangerous actions. The argument from some who squeezed GameStop stock was that they "liked the stock" and had every right to buy it. This whole saga is well documented online and is worth further investigation in its own right. But what this whole episode told me was 1. the stock market can be an interesting place to hang out, and 2. money is to be made.

So with this very narrow but useful information, I began to educate myself on the basics of stock market investing. This process took me about 2 months, during which I read about 18 books on stock market theory, practice, and history. I was pleasantly surprised that I thoroughly enjoyed each book. The more I read, the more I wanted to read on this subject. I think coming from a scientific background, with experience in statistics and computer programming also, I saw that perhaps I had some interdisciplinary skills that might help me become a good investor, a bold thought for such a naive young man.

Characteristically undisturbed by this, I set about trying to buy some actual stock. Because of my newly gained education, albeit brief and narrow, I chose to invest in index funds. Index funds are quite remarkable in many ways, often touted as "boring" and "safe." When spending money, I think these two characteristics would suit me just fine. I don't like the words "risky" and "exciting" when talking about investing.

Another great point about index funds is that they promote laziness. In most cases, laziness is an undesirable trait, but when it comes to investing, you should be as lazy as possible. One obvious benefit is that making money by being lazy is wonderful, but to make money effectively, it actually helps to be lazy. The last thing you want to become is an amateur day trader, frantically buying and selling stock every day, unable to sleep well at night. No, this won't do at all. Index funds are easy because they are managed, for in most cases, a low fee, for you. All you really need to do is periodically buy a well-established index fund, for example, the S&P 500.

Really, all you need is index funds. However, once past the initial push into a new field of exploration, it is human nature to want to push out a bit further. This instinct should be heavily repressed as an investor, but if you must look elsewhere, Real Estate Investment Trusts (REITs) are a good option. REITs are basically entities holding large property portfolios. What is interesting about REITs is that they are legally required to release, I think, about 90% of their profits back to investors annually. This means you get a nice dividend bump regularly. This can be a little emotional booster to help people to keep investing. Of course, I would recommend reinvesting this dividend payment into an index fund or back into the REIT itself.

So, a 90% index fund and 10% REIT portfolio looks like a wonderful ratio to me. Many people like to invest in single stocks, but I would say this practice should be kept to a minimum. Only invest in sectors or companies that you know a lot about, and try to limit overall single stock selection to 5-10% of your portfolio. Only invest what you are comfortable losing.

I will not be delving into my personal investment success here, but what I can say is that over the past three years I have thoroughly enjoyed my foray into investing. For me, it has been a success, and I look forward to continuing for decades to come. I guess I can thank a GameStop short squeeze for that.

Disclaimer: This information is for entertainment and educational purposes only. This information does not represent, in any case, specific investment, legal nor tax advice nor recommendations to purchase a particular financial product.