On Investing 28 Oct 2007

Every month since coming to work at Slide I've been putting away some money into a low-yield savings account, the modern financial equivalent of hiding money in the mattress. The more I've been thinking about this, the more I've been wanting to change this, start investing and the likes, putting my money to work (I don't get a break, why should it!). The biggest obstacle however is that, as a young man in the 21st century, I haven't the slightest clue what to do here. It takes grown men their entire lives to really get a handle on such large volatile systems such as the stock market, what hope do I have to do anything but piss my money away?

The dollar is unfortunately weak right now but I feel that it will turn around soon, so it seems like an ideal time to start investing in a few select stocks. I figured that I would pitch my plan, and see what reactions it got before I started to actually put money down.

The Plan

Please point out as many flaws in my logic as possible, I want to be as prepared as possible before money leaves my bank account(s).


The "inspiration" for how I want to invest comes from some development methodologies that have started to crop out in various places out of the desire to increase productivity and squeeze the most bang for their buck of developer time (such as SCRUM). "The Plan" will follow a similar "flow" as it will be oriented around a planning period, an investment period (the sprint) and the analysis period (basically me crying because I lost all my money). I think that allowing for a cycle of around 7 months for "the plan" should be adequate enough to maximize returns while maintaining a good diverse portfolio. Some of the very few stocks I follow seem to perform well for a 6-10 month period before somebody either does something stupid or a product line fails, etc. Catching this wave is important, as is getting off at the right time, this concept is nothing new, but will probably be the hardest rule to follow from "the plan."

Step One: Research

The entire first month of "the plan" I intend to spend on research, not full-time, but on my weekends and free time. This part of "the plan" should allow me to scour the internet reading up as much as possible on candidate stocks, charting their progress over the first month and getting familiar with those leading the business and their ability to do so. Investing in lines on a bar graph is not what I want to do, I don't think, given my experience with investing, I will be able to analyze a company's potential just by looking at numbers. This phase is definitely going to be the most interesting and educational about the market and will help me figure out whether this is really a good idea or not.

Step Two: Invest and Track

With my set of stocks for this cycle chosen in Step One, now it's time to actually invest. I'm not certain whether going through a broker, e*trade or another online firm will be the right way to do it, but I'm open to suggestions. Pending the research I would do beforehand, that would gauge how much money and where I would invest. Once money is invested however, it's hands-off until the end of the sprint of 6 months. Every week I intend on watching the stocks, following the companies and what they're doing to, and doing basic incremental metrics on how well everything is performing. This should be the fun part of the entire cycle, partially since it's the least work, but it will also allow me to learn the most about how the market works in contrast to world events.

Step Three: Extraction and Analysis

Regardless of how well they're performing, what goes up must go down, after the 6 month sprint from Step Two, sell! Once all the money is out of the selected stocks, it'll be time to really analyze how well everything performed. Ideally finding which sectors are doing well, what influenced the stock prices, what the company did during the sprint and how well the market as a whole did during the sprint. Pending the success of the first cycle of investment in this fashion, this step will lead nicely into another cycle's "step one" and allow for rapid iteration on fine tuning my investment savvy and give me a chance to try out investment in a variety of different businesses and markets.

In general I haven't decided how much money I want to start putting into the stock market nor have I decided on when I want to start, but I've been pondering this plan for almost a month now and would love to get feedback from anybody that's tried their hand at investing, etc. Because the first cycle will be an experiment I will most likely be noting my progress here. If anybody wants to join, let me know! It could be fun to "pick your teams" like fantasy football (I can't believe this exists) except with actual money and (hopefully) actual returns.