My biggest learnings about the markets have come from the three major blunders I have made thus far in my over a year’s experience as a retail investor. These were my investments in $RIVN, $UVXY, and $HOOD. This introductory blog on my investments will focus on these three investments in moderate detail. My goal for this blog series is to chronicle my progress, setbacks, highs, and lows in the financial markets in my pursuit to learn the workings of the markets as I strive to conquer them all.
This blog comes after a mighty loss in my investment in $HOOD call options in these last few days which single-handedly removed north of $500 in value in a week where I have netted a loss of over $1000! I had planned to start blogging about my efforts in the markets at the beginning of the summer, but this major setback has given me the necessary kick to begin now. I hope this will be therapeutic, keep me accountable and drive me to put my best foot forward when dealing with the markets. Of course, I don’t plan on exterminating any future blunders — they are but inevitable. Still, I hope these measures will eventually create a trove of valuable learnings that I can apply to future investments and create long-term wealth.
As it currently stands, my entire portfolio is exactly $7947.40 at the time of writing this very sentence. My current holdings predominantly include cash (earning 4.9% APY from Robinhood Gold) and individual stocks. My total capital input historically has been exactly $7550. That brings my historical profit to about 5%.
Now that we have the basics out of the way, let's dive into the first of my three mighty blunders and my first-ever decision in investing — buying $RIVN shares. The first time I ever bought shares of Rivian Automotive was when it was trading at a 50% discount to its IPO price at about an average price of ~$50. Rivian was a hot name with a lot of cash in an emerging industry. But, from the very second I bought the shares, I wouldn't see anything but red on the investment for about a year! At its peak, I had a net loss of about 65%* on that one stock alone! What was my blunder? Not paying attention to macroeconomics! You see, my investment in $RIVN coincided perfectly with the beginning of the "transitory" recession of the post-pandemic bubble (2022-23). This is where I learned my first big lesson.
Growth stocks TANK in a Recession, and it is better to take refuge in highly profitable companies as investors begin rewarding profitability over growth!
Other than that, $RIVN also had great supply-chain issues and growing competition as other bigger players were beginning to enter the electric car industry.
However, my only solace was my long-term commitment to the company as I continued to buy more stocks as new dips emerged. Now, my average cost for $RIVN stands at $26.22 — at breakeven!
The commitment to the company came from my faith in the product from a quality standpoint, from its substantial cash reserves, which gave it some runway, and from confidence in the management to weather this battering storm of veining stock value.
Thus, I weathered the storm to the other side with nothing but time lost. A whole year's worth! A return on investment of nothing! My next two blunders, however, did not have the luxury of time in the same way as $RIVN did.
Soon after, when I realized the bigger picture in play here and with the looming recession underway, I began to think of different ways to capitalize on the recession. I started researching what instruments perform best during recessions other than outright shorting $SPY. I didn’t want to resort to that because of the unlimited loss possibility of shorting — I was new in the market with a modest capital to deploy, and I didn’t want to get wiped out and under because the market decided to rally one fine day against all odds!
In my research, I learned about the spikes in $VIX during times of recession. For some background knowledge, $VIX is a volatility index that sways in either direction with a rise or fall in volatility. In lay terms, it has an inverse relationship with the S&P 500. That is, if $SPY goes down, then $VIX goes up, and vice versa. I hope you can appreciate my delight at that prospect at the time.
I invested in some $UVXY, an ETF holding short-term $VIX futures. A disclaimer about $UVXY is that it is 1.5x levered! So, again, in lay terms, if the $SPY goes down by a dollar, in an ideal world, the $UVXY would go up by $1.5; it didn’t always turn out that way, however, due to other technical nuances about the ETF. Surely the $SPY would have a downward streak in the upcoming weeks, and, sure enough, it did. In fact, at one point, I was up over $200 in $UVXY! My only miscalculation: overestimating the amount of the downward streak. My greedy mind was secretly hoping for a black swan event to kick in. A $200 profit was a tiny amount at that prospect. And thus, I made the cardinal sin of treating $UVXY as a long-term investment. It was and is anything but that!
Over time, the profit faded, but I didn’t give up hope. I was okay with a short-term loss for a massive payday in the future. I was a long-term investor, after all. Besides, I had a stack of different scenarios that I was cooking up that could induce a black swan event into reality — the pandemic bubble popping, for one, the impact of the rising inflation, and even the nearing debt ceiling stand-off. One after the other, my hopes shifted from one scenario to the next. Spoiler Alert! None came to pass the way I wanted them to. By the time I realized and accepted that $UVXY was only a worthwhile investment for very short periods, I was about 75%* in the red! I could not bleed any longer and finally sobered up to the only rational decision, cutting my losses and living to fight another day. I did away with my position. My lesson?
Understand what an instrument is capable of, and play it how it was meant to be played, not how you want it to be played.
I also realized the reality that markets mostly trail upwards in the long term, with very narrow down periods scattered across. Therefore, holding $UVXY as a long-term investment was as idiotic as it gets.
That brings us to the recent past — my newest major blunder — buying $HOOD options. This decision is also the one I am most embarrassed about, considering the little research I had done and thought I had put in before making my series of horrible miscalculations. It all started one day before the $HOOD 2023 Q2 earnings report was scheduled to come out. I had already secured a profit of about $500 trading $INTC call options contracts (after receiving some edge) and was trying to ride a similar ride with $HOOD. In my defense, my predictions were better than spot on; Robinhood had just made a surprise profit for the first time and beat the EPS estimate of -$0.02 by a considerable margin (actual EPS of +$0.03). It also beat estimates for revenue by a significant amount. However, clearly, that was not enough — the stock tanked by more than 12% right after. As it turns out, I had made a huge oversight about which key metric would really drive the stock price — its MAU (monthly active users) count. Robinhood's MAU fell over a million to about 10.8 million in the second quarter alone! That is about half the number they had during the peak of the pandemic bubble. You would think that my previous learning about favoring profitability over growth during times of recession from the Rivian disaster would have worked here… Nope! This led me to another fundamental lesson.
A growth stock is just that, all about growth. If there is no growth, there is no value. That is regardless of profitability!