How Do I Invest

A few friends have asked me how I approach investing.  This post is the first of hopefully many to come.

How I think about my Investments

Investing to me is about making my money work hard while limiting the risk.  For those new to investing, it is a generally known fact that to reap the benefits of higher returns, one likely will take on higher risk to get that higher reward.  For me, I have a strong dislike for risk and I have seen the ups and downs of the market, those cycles do make me uncomfortable. I would be, what you'd call risk adverse.  But I also don't like to see my money languish in the bank, getting anywhere from 0.5% to maybe 2.0% in annual interest.  So what is the balance?  For me, I like a little bit of risk, but not too much risk, and I enjoy trading options, what should I do?

Here are my goals: 

1)  Don't Lose Money 

This is a Warren Buffet goal that I've borrowed.  I like the simplicity of it and I fully agree that I don't want to lose money.  Therefore, I'm less willing to risk my money for a higher reward.  I tend to do a bit of studying of the company, the environment, and the option strike prices to bring my "win" probability higher, in lieu of making slightly more money.

2) Make more than bank interest rates

Like I mentioned above, the banks are offering somewhere between 0% to about 1% or maybe even 1.7% per year.  It's your hard earn money, you'll want it to work harder than that!

3) Timeframe - 2-6 weeks

Some people say, find several good companies and buy their shares, watch it grow over 10-20 years and get some deferred tax benefits.  Or diversify and buy the total stock market ETFs.  All true statements and valid strategies.  I've seen that work really well, and work poorly in some of the deeper recessions (internet stocks crash of the 2001, and financial crisis in 2008/2009).  I know people who lost 65% of the value in their portfolio with the "buy and hold", or also known as "buy and Hope" strategy.  My 401K is well diversified and it utilizes several ETFs, so I feel like it's on its auto-pilot mode and I'm comfortable with that.

I trade options as my side hustle and I enjoy it.  That is probably the bigger reason of why I do what I do.  Yes, you can totally buy the S&P 500 ETF or the Total Stock Market Fund ETF and set it and forget it. As long as your timeframe is 15 years or more, you'll likely do great using that strategy.

I prefer to manage some of my portfolio myself.  In doing so, I stay on top of financial news, political news and world events (that impacts the US).  My trades are on US companies and generally I know what the company does and review their most recent 6 quarters of results.

I sometimes do very short term trades during earnings week when volatility is higher as I sell Puts and I prefer to command a higher premium.

4) Trading Vehicles - PUT options and Dividend Stocks

I sell PUT options on companies that I like and wouldn't mind owning, in the case that I get assigned the shares.  The PUT options are out of the money with an ~85% to ~90% probability of staying out of the money at expiration.  I'll write a longer post on the details behind how that is done and share an example.

I know a few fellow investors who sell Put options on dividend stocks and if assigned, they will hold the shares through ex-dividend date and reap the gains of the dividend.  That is also a valid strategy.

I will share more on the Hows as well as the Dividend Stocks in my next post a week from now.  Thanks for reading and I wish you and yours a Happy and Safe Holiday!