My First Stock Investments

A trip down memory lane is in order on the event of this anniversary of my first stock trade. Some of my earliest trades did not work out so well, so I figured I’ll share my experience so that the readers may learn and avoid similar mistakes. One of my favorite quotes from John Bogle is “Learn everyday, but especially from the experiences of others. It’s cheaper!” So, with that in mind, here’s my story of how my first couple of stock trades played out.
I started saving and investing in 2007, but since I was new in the gameand did not know how to evaluate companies or what to look for in annual reports, I decided to start with mutual funds. As was the craze in those days, I picked funds that were hot – funds focused on China, India, and Brazil. Eventually I would sell them after a couple of years for a minimal gain.

But this story is more about my first stock investments. In 2008, while the financial turmoil was already underway, I decided that I would start buying individual stocks of companies. The S&P 500 was down about 7% since Jan 1st and about 9% down from a year earlier.

S&P 500: Apr 2007-Apr 2008

The first companies I picked were banking firms! I opened and funded my brand-spanking new investment account with $1,000 and could not wait to get started. I performed the following three trades in three days.

  1. Apr 16, 2008 (six years to this day) – Washington Mutual Inc – a savings bank holding company, which was the largest savings and loan association in the US. I bought 25 shares at $11.04 each for a total of investment of $276. The company would eventually go bankrupt on Sep 25, 2008.
  2. Apr 17, 2008 – Wachovia – was the fourth largest bank holding company in the US based on total assets. I bought 10 shares at $25.35 totaling $253.5. After the tremendous collapse, the company was eventually absorbed by Wells Fargo (WFC) and I got 1 share of WFC in exchange. I still own this share as part of my WFC holding.
  3. Apr 18, 2008 – Merrill Lynch – the world’s largest brokerage firm. I bought 8 shares at $47.95 each totaling $383.60. The company, under distress, was absorbed by Bank of America Corp (BAC)  on Sep 14 2008 and I got 6 BAC shares in exchange. I held this for a long time and eventually sold it at a loss. 
So, all in all, terrible investment decisions. I was caught up in the noise from the media and based my decision by listening to the so-called “experts” in the field. Moreover, these were companies that had the reputation and had been around for over 100 years, so my thinking was that they would weather the crisis just fine and come out on top. I could never imagine that these companies would die. But I learned a valuable lesson during the process. As luck would have it, the start of my investing career during the financial crisis made me a skeptic and I decided to learn and understand a company’s business model, due my due diligence and research my evaluation before investing in any firm.

It took me a year or so after that when I started realizing the power of dividends and even there, I learned lessons the hard-way – going for the high yield stocks and  funds. After a lot of trial-and-error, I finally found my way to dividend growth stocks and found that this mechanism worked and stuck with it. I now use a combination of dividend growth stocks, high income stocks and funds and index funds for my complete portfolio.

Why Dividend Growth Stocks?
Even though my learning curve was far from ideal, I realized that a majority of the investment philosophy out there was the traditional buy-low-sell-high, which works in theory, but is nearly impossible for anyone to time the market right. I decided that this performance-chasing was not going to work for me and turned to the concept of dividend stocks and passive income to fund my retirement. Dividend growth investors choose stocks in strong companies and participate as business owners staying invested while sharing the profits on a periodic basis; instead of active trading stocks in growth-focused companies where profits are unrealized until the investment is exited. 
By subscribing to this mechanism, I am not trying to beat the market each month, quarter or year. My goal is to increase my cash flow and generate enough passive income to achieve financial independence. By following this method, I have grown my passive income by leaps and bounds over the last five years. My progress so far is shown in the chart below.

Annual Passive Income Progress

What was your first investment? How did you end up choosing your current investment philosophy? Share your story below in the comments section.

Full Disclosure: I am long WFC. My full list of holdings can be found here.

14 thoughts on “My First Stock Investments

  1. Thanks for sharing R2R. Yeah, you jumped into those banks at just the wrong time. I did the same by investing in BofA a couple months later. I lost $2k on that investment, but learned a host of lessons. A quick word on the experts we see on tv. I was thinking the other day, if these guys were really as smart as they act…..they would either be wealthy and retired…….or atop some massive hedge fund somewhere. Not on CNBC hawking their newsletter :o/

    My first individual investment was General Electric, prior to that I had only invested in index or mutual funds. I was also in 2008 and GE’s price had fallen from $40 to about $30 when I bought. I kept buying through the financial crisis, and ended up ok…….but not my finest start. Fortunately, I’ve learned a lot since then…..mostly about myself
    -Bryan

    • Thanks for sharing your story as well, Bryan. We always share our success stories, but we would be kidding ourselves if we didnt share our humble beginnings. As I mentioned earlier in the post, one of my favorite quotes is from Bogle about learning from others’ mistakes. With this post, Im hoping that others can learn and avoid the mistakes I did.

      You are right – if people were really experts, t hey would be wealthy and retired and wouldnt be hawking their ideas on CNBC.

      Thanks for stopping by and the comment
      regards
      R2R

  2. My first experience investing in individual stocks came in August 2000. I bought $2000 worth of Home Depot at $59 and then a month later I bought $2000 worth of General Electric for $52. I finished off the hat trick by purchasing $1500 worth of Intel at the bargain base price of $71. Within two years I threw in the towel, sold out, and got about 40% of my initial investment back. The funny part is I bought GE and Intel last year and both were still valued at less than half of the 2000 price (less dividends) and were yielding over 3.5%. The PE ratios of these companies were between 50 and 100 back in 2000. I didn’t know what a PE ratio or a dividend was at the time. I believe MO had a PE ratio of 7 and a yield of 6% at the time. No one was interested in companies like MO back then.

    • Thanks for sharing, MDP.
      I think every investor goes through a phase of losing some of the initial investments. Those are astounding P/E ratios, which of course you realize now that you are more aware of how to evaluate companies and of course the hindsight.

      Thanks for stopping by
      R2R

  3. Talk about bad timing to go bank heavy. The good thing though is that usually when you start out you’re making smaller investments so even though these turned out pretty badly the actual dollar loss wasn’t that bad.

    I just looked back and luckily my first investment has turned out pretty well, EOG Resources (EOG). Sitting on a double there and they just completed a 2:1 stock split. Although that investment was started just a day before my 2nd investment which was a Chinese auto parts manufacturer trading for less than book value or net working capital, I can’t remember now. But it wasn’t a DG company and I honestly did very little research on the company. Luckily I found DGI shortly after that.

    • Looks like you picked a good company, JC.
      Yeah it was three days of terrible decisions on my part! I just repeated what the media kept saying – “these institutions have been around for more than a 100 years, they have been thru the Great Depression, two World Wars, countless other crises over the decades. The stock has now bottomed out. Get in NOW”.

      You are right – considering the dollar amount, it wasnt bad. Thanks for sharing your story.

      cheers
      R2R

  4. I had a mixed bag when it came to getting starting investing. My one choice did great, but my other choice, WorldCom, was another story. I bought it and rode it down, down, down. Thinking it was still a buy, I put more money in. Then it went bankrupt. Even though I lost money, I still learned a great deal from it.

    • Thanks for sharing your story, Jon.
      WorldCom took a lot of people down with it. I hope those lessons werent forgotten by the SEC and the pain everyone involved went through. Who knows how many more companies are cooking their books out there?

      Thanks for stopping by
      R2R

  5. Norris says:

    I am still new to all this, i started to invest in january. I always pick dividend aristocrats with at least -20% off from 52 year high with low p/e and p/s. So i am a lucky owner of ADM and JCI 🙂 My first investment was a mistake, based on some suggestions in internet, i bought NMM stock for 2.55, it is still under 2. My mistake was – i did not check fundamentals.

    • Interesting methodology — looking for 20% off the 52-week peak. Looks like you are off to a great start with ADM and JCI. Great companies given the track record and the future looks just as bright. NMM is something that I am not too familiar with, but with global trade collapsing, Im not surprised that those companies are suffering.

      R2R

      • Norris says:

        Those 20% are my margin of safety 🙂 How do you think: which one is better for long term – VLO or PSX? Valero has better fundamentals but Buffett like PSX better, i am confused 🙂

        • I am not too familiar with the companies and their current valuations. Downstream companies are a better place to be for sure…but just because Buffett owns it shouldnt have too much weight on it. Im sure VLO is a very well run business too. Sorry, I dont have a clearer answer for you

          R2R

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