My Beginnings With The Stock Market

I’ve been interested in stocks only recently. It was on February 22nd, 2024, when I decided it was worth beginning the long but very rewarding journey of discovering what the stock market is and, more importantly, making some money along the way. Yet, only more recently did I discover my passion for trading volatility and the power that options trading combined with top-down technical analysis can give me. Before I even explain what any of that is, I want to iterate—for my own selfish reason of documentation—over what I’ve actually learned so far on my journey. But first, let me give a simple explanation of what the stock market is: it’s just people hedging their earned capital on the belief that some company or group of companies will become more profitable in the future. When people have faith in the future earnings of a company, they buy stocks, or IOUs, from the company, and thus its market value increases. Conversely, when people lose faith that said company will be profitable in the future, they sell their stocks, turning in their IOUs, and thus the market value of the company decreases.

What I’ve Learned So Far

The first fact about the stock market is that the market is driven by human belief. Now, I don’t mean this in some extreme “all of this is fake and made up” way, but the fact that all movements in stock prices—whether up or down—are ultimately rooted in people’s perceptions, expectations, and confidence in the future. If enough people believe a company will succeed, its stock price will rise, even if the company hasn’t yet proven itself. Conversely, if people lose faith, the stock price can plummet, regardless of the company’s current performance. This initially threw me off, since I first approached the stock market from the stance that I could sift through enough financial reports and do enough “math” to find magically undervalued stocks. I personally believe the time for flipping through the Moody’s Manual and relying on balance sheets is long since past. I do think there is a lot of merit to value investing, but personally, I believe there are more useful tactics—especially if you are on the younger side, like me—tactics that rely more on human belief than any report or sheet.

• In general, it’s a good rule to use riskier tactics the younger you are and to take on less and less risk as you age.

The second—and far more controversial—opinion I’ve gained, thanks to the lovely company that is CrowdStrike back in July 2024, is that singular businesses are not worth investing in. To expand further on what happened with CrowdStrike: simply put, a cybersecurity application turned into the malware it was supposed to protect. It goes way deeper than that, but for the scope of this post, it simply doesn’t matter. What matters is that a product lost a huge amount of belief in it very quickly, meaning it lost a lot of market value very quickly (and cost me a decent amount of money).

As you can see above, in the span of just a month, it lost 50% of its market value. What makes this especially satirical for me is the fact that I bought into this stock right at the top of the little bump before the massive drop, which was caused by a subpar earnings report from CrowdStrike. At the time, I saw a wonderful 5% retracement in a company I had a lot of **belief** in—CrowdStrike as a company doing better in the long term. So, what does this actually mean for you, the reader? The key takeaway is that I utilized an earnings report to predict the company would recover from its 5% fall, but I got screwed over by an unpredictable bad update. To me, this signified that any company could, at any moment, lose a lot of traction due to unpredictable internal decisions. Thus, I’ve chosen for my own investing strategy to no longer mess with any singular companies.

• A key point is that the company’s value did recover from the point I sold, but still, this combined with the last fact made me want to find a riskier technique that doesn’t deal with any singular business.