November 30th, 2020

Small Talk About Stock Markets

How one investor uses's Explore Search to avoid making emotional investing decisions.

This post was originally published by David Droulin.

One morning I overheard some small talk about retirement in the elevator. To make it short, two employees at my work were counting down the days before they can finally stop working. The younger lady was counting years and the older one, months. I could sense a deep feeling of relief in her expression and it particularly caught my attention. We spend a decent proportion of our life going to school to learn stuff, so we can then start earning money to live our dreams. Eventually, the body gets older and we get tired of working instead of enjoying. I’m not saying work is not enjoyable. Every single morning, I wake up grateful because I love what I do. But I’m 26 and I still have so much to explore in that field. I know that someday, I’ll want to explore something else. That’s when people usually start thinking about retirement.

I know this guy who quit his job as a lawyer at 40 to write books for kids – he actually had to pay to get them published. You would think this is crazy. But the guy always wanted to write. He went to university, became a lawyer, saved money, and invested it wisely. He created his own freedom. When he left the court to sit behind his desk in a gorgeous mountain retreat, he was not worried to sell enough stories to be able to continue paying his bills. What he told made a lot of sense. ‘’David when you end up having everything you ever dreamed of – a house, a family, or traveling to space maybe – you start thinking about all the things that you could do if you had the time. Most people don’t plan this shift of reasoning, and they will have to put their new dreams on hold until retirement.” He invested his money wisely by the way.

Average investment strategies would probably not allow someone to retire earlier than planned, even with implementing an aggressive saving structure. Compounding is what makes investments interesting and is unfortunately often overlooked. Let’s just look at actual numbers to make it more obvious. One of the market’s major index – the SP500 – made on average 6% annually over the last 20 years. If you invest 10K in the broad market, or just average funds, you would have about 100K in 40 years. Good. Let’s say you’re able to beat the market and yield a 10% return annually – you would have almost half a million in 40 years. Stellar.

The profit you make on your capital should always be equivalent to the effort you put working for it. If you receive a huge inheritance or if you win the lottery, it may not matter as much if your 100M is yielding 1B or 4.5B over 40 years. Both are going to be far more then enough to exempt you from having to ever wait for retirement. But if you’ve been waking up every morning to save a little 10K per year, you would want that half a million out of it.

The journey of my thoughts ended up in the stock market. But my mistake was to think that I could beat Wall Street with a few clicks. I lost. I had to lose on a big trade to realize I needed to understand charts, fundamentals, products, sectors. The next day I started reading One up on Wall Street. I then spent hundreds of hours learning to perform better in market research and stock analysis. When I thought I was ready, I failed again – yet the negative yield of my portfolio greatly improved. l went deeper in chart analysis and as I was getting better, my yield was growing. When you start contemplating charts, you learn to read between the lines. Basic level gets you to understand the vibe of the stock – or a trend. Intermediate gets you to detect areas of possible confrontation – or support and resistance. Expert gets you to master the risk assessment - or the entries and exits. You’ll also want to learn to feel the global sentiment and momentum of the stock.

I improved greatly in setting profitable entry and exit levels, yet my decisions are often lagging the market. There is a complex mathematical storm dictating a stock price at a specific point in time in relationship with the number of sellers and buyers. Since you’re expecting always the same patterns, algorithms can hep finding the entry and exits levels. In other words, it can help you run away from a bad trade or prevent chasing a potentially bad one. I am better at anticipating catalysts in sectors that I know well than detecting all the potential early signals on a chart, and the use of algorithms saved me quite a few times.

But wait, algorithms are not necessarily going to make you beat Wall Street if just a few clicks. First, you’ll have to find formulas that work well and optimize them. Most tools will give you headaches doing so, but I recently found out about Their platform offers dozens of algorithms can be applied on my watchlist and on my charts. It then generates a score out of 100. I was surprised to see that the stocks I committed to buy after mastering the chart and understanding all the fundamentals had an average score above 90. The stocks that I kept on my watchlist had a poorer score and they all performed poorly in the market. It’s obvious that I now never enter a trade without confirming I’m not doing something stupid with If I’m about to jump in a trendy stock with a lot of emotion and the app shows me a vSCORE of 20, I’ll think twice – only an underestimated catalyst would prompt me to enter the trade against the algorithm.

Over a long period, understanding catalysts and trading their waves will also make your portfolio stand out. If you have technical knowledge in a field, use it in the market. Remember that it may take some more time for a Wall Street analyst to digest the meaning of a new research paper or detect disruptive technologies. The algorithms also help me identify change in sentiment and momentum related to these catalysts. When other people gradually find out about the potential value of the catalyst, you start seeing things lighting up. Getting better at finding those trades will have a great impact on your portfolio and if you find enough good entries you may be able to transform your 10K in half a million over 40 years. Stocks
TagsGuest PostGeneral InvestingExplore SearchAlgorithmsRetirement