Things have been going pretty good. My main actual portfolio, which is focused solely on fundamentals, has been doing pretty solid. I have no worries about it. It's filled with stocks of which are relatively undervalued when compared to the broader markets.
Since this portfolio is a 100/0 long/short, I didn't want to overexpose myself with straight up buy-side exposure to relatively risky stocks.
Now, that doesn't mean I'll hesitate to jump on smaller cap stocks of which I believe are undervalued and or lucrative growth opportunities, but these days, I want to err on the side of caution. There's always going to be time for investment opportunities, and I don't want to blow out.
Anyway, for the time period I am planning on holding these positions (a long time), I know I'll be fine. Real losses suck. Losing money sucks. Actual realized losses feel terrible.
What about fake losses?
So I joined a stock simulator with some people I know from school. It's pretty nice. I enjoy doing my own independent research and learning quite a lot more when I can actually talk to people I know about a subject I truly do enjoy talking about as well. For a pretty long time, I would just learn on my own. But synthesizing my ideas and teaching concepts to people who are pretty interested, at least for now, about trading is definitely beneficial to both parties. It definitely brings in some excitement to what has been more of a "steady" process of learning about trading.
Anyway, new point. This is a stock simulator.
It lasts for 70 more days, and the goal is to make as much money (or lose as little money) as possible within that time period.
The rules have changed drastically.
I'm quite happy with them, too. I get to be able to test and screw around with speculative ideas that I have that would never be implemented in a personal portfolio which primary goal now is to not lose capital; college is coming up in two years. Now, in the game, given the amount of other participants, the only feasible way to win is to make as much money as possible. The risk tolerance is much greater, because obviously, I'm using fake money.
Some people that are involved with it are pretty competitive about it, too. It's great. However, to me, I honestly don't really care how I end up placing, or whatever. It's pretty fun; taking on riskier trades with higher betas and volatility. But a stock simulator takes out some important concepts and experiences that can only be experienced with real money.
- The losses are not real. This is the biggest one by far. We have $100,000 to work with and margin trading is allowed, so there's no T-3 settlement we have to deal with. We can constantly deal in and out with no day trading taxes as well. If we were to lose money, no big deal! It's all fake, anyway. Our actual wallets aren't going to be hurt. But what if this is money you actually saved up for years to acquire. What if this is a portfolio that you have been managing for the past 5 years? Also, there's really no way to describe the feeling of actually blowing out on a stock in real life with real money. It just has to be experienced. The feeling sucks.
- The time constraint. In real portfolios and situations, there generally is no time constraint. If there is, the time period is much more plausible, at least above seven to eight years. Racing to make the most money in two months is simply not realistic. In this situation, doing the conservative, less risky option, will simply not work. Trading in volatile stocks is the only way to win. There are eight other people in my game. If I do what I'm doing right now in my real portfolio, I will take on less risk, which is boring, and lose or make a smaller amount of money. However, there is no doubt in my mind that at least one of the other eight people can easily beat it, even if they don't do "the right thing", either by pure luck or if one of their picks happens to be a winner, if that makes sense.
- On that note, fundamentals are deemed much less important to overall performance in a two-month time constraint. Technical analysis, only looking at the chart for short term swing or position trades, is simply a better decision. Finding undervalued stocks with fundamentals, and buying into them with TA will not work. As to why, to put it simply, it usually takes much longer for the market's perception on how a stock should be priced to align with an investor's valuation through fundamental analysis than two months. That time gets cut even shorter if one were to wait for a solid buying opportunity with TA as well.
- Finally, Taxes. This concept has actually a pretty significant impact on actual trading decision making. In real life, people get taxed on their capital gains and volume of trades. If they trade a lot, they get taxed quite a lot. People think twice before trading shares every other day.
With that in mind, I already set up and outlook and philosophy for taking on this game. I guess it's sort of comical, how unrealistic this is is, but it's pretty fun. I haven't done risky and far-fetched stuff in a while and it feels good to be able to do so while remaining engaged. Like I said before, there is no actual repercussion for losing. I don't get burned in real life. It's pretty great. I only wish I could use leveraged options to make it even more risky.
- I'm going to do a 70/30 long/short portfolio. This is because I think the market still has some room to run for the next two months, but I can't be sure as it is only two months, so if it goes through a correction, I will still have my shorts to hopefully still bring me up. I also want to be able to short a decent 30 percent of my portfolio to hedge my aggressive longs as well.
- Invest all the cash. No margin on my longs, however, simply because I think using margin always is always a dumb idea. In this situation, the saying holds true, "go big or go home". I didn't sign up to manage an entirely new portfolio to stay on the sidelines holding a large portion of cash. In real life, sure, that's not always a bad idea. There could be times when one does not see investment opportunities that he or she wants to jump on. But having only two months to work with really changes the game.
- Speculate. In advance, I am not planning on just throwing my money around. I am still going to due my due diligence and research. But like all seasoned traders know, all the research and diligence in the world still may go wrong, and it's just so much harder to consistently be right with risky trades. I won't really get to do this for quite a while with my own actual portfolio and money, so I'm going to really let go here. During my tenure in the game, I will probably trade in leveraged ETFs, some small and maybe even micro caps, maybe even bet on earnings and rumors. We'll see. Again, I wish I could use options. I could really go crazy there, but whatever. It's not hard to find ways to be risky in the financial markets.
Anyway, that's about it. This took quite a while to write. I should probably be studying.
I think I'll maybe update my fake sim portfolio along with my actual one for the next seventy days. I'll be able to see differing approaches to the markets, and it will be fun to see how they compare against each other, at least for the next two months.
But there's the 90/90/90 rule, that 90 percent of new "traders" lose 90 percent of their money within 90 days. and I'm only doing this for 70 days. The comparison may still not be too realistic.
I'll still probably update on the sim portfolio.
In other news. Finals are coming up. I think I'll be fine. If it goes well, I'll have a really good semester. Probably my best so far.
I also have an interview for a paid internship tomorrow. I need it to go well. I am super interested in the topic, can do everything they ask of an intern, and the location will be awesome and convenient for me. It would be kind of cool, too, in that I could help with my family's expenses and seriously save for college. It's definitely coming up soon, and the pressure of college is definitely building.
Sorry in advance. Couldn't add any pictures to make this post more interesting. Tried.