How I Doubled My Portfolio In 2020 Without Reddit, Day Trading Penny Stocks, Or Options!?!

First things first, I am not a professional investor. I consider the stock market my hobby and I thoroughly enjoy reading and listening to business and economic news. I am also not a genius. I consider economics and “business” my passion which is why I chose to study it in school after the Army. I do have an Undergrad in Management and am finishing up an MBA, but that is in no way necessary to run a successful portfolio. I don’t have a sophisticated trading strategy supported by metrics and algorithms, a staff of trading desks, I am not part of ANY online forums and I also don’t do options. I adhere to a few simple principles, I follow the news, and keep up with companies. Yes, the title photo is a real screenshot I made in January when the portfolio was at all-time highs, below it is again to give you a closer look. unfortunately, it is not interactive but the lowest point on the chart is, of course, March 2020. Just some details about the portfolio: NO Options, no penny stocks, only one ETF, the number of individual names fluctuated between 20 and 40 names (this is a mostly personal choice), No tricks. My biggest positions rotated mostly between VOO, Apple, Amazon, and Tesla but also others.

I know that I am not the only one that made incredible gains last year. It was just a great year for the market. I am sure some of you might have even tripled their portfolio last year! But too many investors are very insecure about their portfolio and only show off a huge gain after they YOLO’d some penny stock, and you’ll never hear from them otherwise. My point is this article is not meant for bragging. It is supposed to be an educational examination of how a successful year in trading/investing can look with some simple guidelines.

Picking Stocks

2020 was a Stock picker's paradise and you did not have to be a Wall Street guru to pick a winner, but we often approach stock picking wrong. Recommendations are a great way to learn about new companies, but you do not want to be in a company you know nothing about. It’s OK to not be familiar with all a company’s ventures, I’m sure nobody except Tim Cook knows about all the projects Apple and Amazon have going on and many would go way over the heads of even trained techies. All I am saying is, have a general idea of what the company does. Know who the CEO is, where was he before? What are the highest and lowest price targets on the street? Look at the last earnings, did they miss? Did they beat? How’s growth looking? Are they profitable? You don’t have to learn to read the Balance sheet, just look at what others have written about their earnings, I explain this more in this article.

After you have found a stock make sure you are not buying at the worst possible time! Does the stock always go down after earnings? Maybe wait a day or two to get in a little lower. Check what the recent highs were, if it is close you might want to watch it and wait to buy, if it is closer to recent lows it might just be the perfect buying opportunity, it’s easy to overthink this part but it all comes down to just doing it, if it goes down after you buy, you buy some more, if it goes up, you made it and you’re now a regular Wolf of Wall Street! One last thing, never YOLO into one stock.

This is my opinion, but I would NOT advise anyone to invest all your money in one stock and hope for a long and bountiful return. This might be debatable but being diversified into multiple names and industries is the best way to have sustainable gains, and don’t feel like all your positions have to be massive. Why not just own one stock of AMD for $86? Yes, your gains will be small but they are still there. Something I have stopped doing a long time ago is looking at the money in each position, I focus on the percentage of that position of my portfolio, I measure my return in % not how much money the stock made me. I know what the percentage is for all my positions but I couldn’t tell you the exact dollar amount for most of them. If you can afford only one stock each, then buy one each and begin to focus on the percentage that position is of your portfolio, this is especially easy if you buy fractional shares because you can be very specific how much percentage the position is if you can buy right to the dollar amount.

When the pandemic hit early 2020, I was skeptical that it would significantly impact the market, I was wrong. Luckily, the market was at record highs at the time and I have already started shaving gains off my favorite names that have gone up! If you haven’t lived under a rock you might remember February 2020 as an ancient hazy memory, almost unreal, unemployment was at the lowest it has been in over 50 years, it was the year of the Olympics, and most people outside of Minneapolis likely never heard the name, George Floyd. We had an administration in the White House that was undeniably pro-business, and it showed. Let’s take a real-life example from my portfolio. The largest position in my portfolio at the time was VOO, and this brings me to my first principle.

Sell While You’re Up!

I incrementally sold my VOO position into strength when the market was close to its highs before March. Remember, we did not know when the bottom would be. When the low point hit around March 23rd, I was already buying the stock again. I started buying in early March which would prove to be a little early in hindsight, but since I was still up from my average price, I decided to lighten up in my total position to have some money to buy other companies that were tanking. The takeaway is this if a stock increases in price sell some to lock-in that gain. If a stock goes up 10% in a day for no reason, I might sell a little just to make sure I don’t lose that gain. Yes, it's peanuts in the short term but consistency will make it grow substantially.

Be flexible, know when to buy, but also when to get out…

Sometimes it's hard to say goodbye, but we must do it. This ties into the ancient trading principle that says, “Do not fall in love with a stock/company”. I overuse the term “love” for stock or company daily, but I don’t mean it. My “love” is just empty words and promises and I will flip on a stock or company in a heartbeat. Call it disloyalty, flexibility, adaptability, or inconsistency whatever it may be, it works. I “love” Tesla! I owned the stock when it was around 146 bucks before the split. I believed in it until the stock went up $100 bucks! Back then Robin Hood did not sell fractional shares, so I sold the only share I had at around $276 and was a fresh Benjamin richer. At that time, I never dreamed of making Tesla even 1% of my portfolio, but that changed when I first test drove one and started to fully immersive myself in the matter of EV.

Know when to buy…

I changed my mind and I started buying the stock as high as 700’s before the split, I then took a breather as Musk said the stock was too high because I agreed. I then fully dived back in when the stock dropped into the 600’s. The company became my largest position at around 8-10% around April/May, which was over 400% ago. Of course, I couldn’t have known that at the time, but there were signs in the water that the company would take off. I listened in on every earnings call, I watched interviews with Musk and I actually looked at their reported numbers like orders, deliveries in the quarter and how many cars are manufactured, and so on.

…but also, when to get out.

Now to the flip side, I also started selling the stock as early as June and I have continued to do so regularly. I added here and there on some weakness, but the position is currently clinging to close to 5% which I won’t let it go over. Why? Because I think that despite all the great things the company has going for it, the valuation of the company is ahead of itself. It did help that Tesla became profitable and included in the S&P 500 which added to the stocks’ legitimacy but it’s one of these names that have gone up so much and investors have so much gain in it that it could easily be the most attractive to sell. I worry more about the shareholders than about the company.

Discipline

This is one of the most important principles I adhere to. I don’t think that it is THE most important because sometimes the best decisions come on the fly and not through analytical deliberation, but in most cases, discipline must be kept. What do I mean by practicing discipline in the market? Easy, “Don’t be greedy, don’t be shy, but be cautious and know when to say Bye!” Yeah, I made that up. The above Tesla example is a good illustration of the discipline as it relates to selling. As you go up, especially significantly, you should start thinking about lightening up because that gain might not last. It also works the other way around. As a stock drops, especially significantly, it could be prudent to pick some up if you expect the company to do well and you know that the drop might be an overreaction. Considering consistency and discipline as it relates to buying and selling is good portfolio management.

A good way to adhere to this is by setting a price target for each stock you own. Before I buy a stock, I estimate according to the charts and current economic conditions where it could go, I then set that range in my mind as to where I should take some profit. I rarely exit an entire position unless I entered it as a trade or I lost my trust or faith in the company. I usually keep companies I believe in around but adjust the size of the position according to my price target range. Because nobody can see the future, these imagined ranges will be crossed, and at this point is where the discipline kicks in. Don’t be greedy, every gain is a gain and any gains are better than a loss or a break-even. Yes, you can always set trailing stop orders, or stop orders to help keep up that discipline.

Keeping these simple principles in the back of my mind is how I continue to see great results in my portfolio. It is simple stock picking and moving with the market. To summarize:

• Pick the right stocks! Companies that you understand and can learn things about.

• Don’t be afraid to sell! You will pay taxes when you file the following year, but if you aren’t dealing with a six-figure portfolio or more you should not be afraid that the taxes will ruin you. Sell while you’re up, otherwise, you’ll regret it.

• Be flexible and know when to get in and out. Check the charts, what are the lower and upper supports? If the stock is currently at its recent high, I should probably wait a bit to get it a little cheaper, but also don’t feel like you will miss your chance. Don’t panic because a stock you just bought dives the next day, look at the chart, is it falling through recent lows, or is it just trading within its regular range? If yes, let's add some when it gets close to the lows.

• Keeping the discipline. Don’t be greedy, don’t be shy. But be cautious and know when to say Bye! Being disciplined is being consistent and consistency is the foundation for all the principles. Is the stock going up so much it looks wrong? Sell some! Stock is going down so fast it looks like an overreaction. Buy some! You might be right, or you might be wrong, but over time this consistency will bear fruit.

I hope this can help a few people to get off the ground if you have been thinking about investing, or it might be a good insight into adjusting your already seasoned investment strategy.

Thanks,

The Punkrock Capitalist