Stefan Cheplick


50 Things I Learned About Investing Over The Last Year

2017 was my best investing year ever. But it did not come easy. I started investing at 19-years-old when I had about $5,000 to my name. I remember trying to buy bank stocks during the Financial Crisis and nearly getting wiped out. I lost huge chunks of my personal savings several times in my early twenties. But while that sounds terrible, I’m here to tell you I lived the best investing lesson ever — make your biggest losses when you have the least amount of money.

For those of you who have been with me since day numero uno, you might remember the moments when I closed my eyes, swung for the fences, and missed. But I truly believe good things come to those who keep pushing forward. Eventually, I saw the hanging curve ball and I sent it to the moon. With that being said, here’s what I learned in 2017 about investing from sheer Irish luck to gritty determination:

  1. You should never feel hate while investing. I think of Yoda and his wisdom when he said, “Fear is the path to the dark side, fear leads to anger, anger leads to hate, and hate leads to suffering.” I think in markets, this quote should hover above you like a halo.
  2. Finding misunderstood companies and committing to a long-term investing plan is the path to true wealth. Real gains do not come from trading. They come from finding a misunderstood company, and then identifying the narrative that will make people realize why it’s misunderstood.
  3. Paul Tudor Jones was wrong when he said “losers average losers.” If you are in a bull market, scaling in and averaging down is a gift. You’re lowering your cost basis and not pressuring yourself to buy all at once. In 2017, one stock in particular made me most of my gains. When I bought it, I entered slowly. Over the course of three months and two major dips, I had achieved a fantastic average buy price.
  4. Your brokerage account is only as good as the amount of money you put aside each month. Without a strong monthly savings rate, you are at the whim of market fluctuations. You are trading or investing to earn your savings. That pressure will burn you.
  5. Most people love to fight trends, or they want to be right, or they want to see everyone else get proven wrong. You will lose money with an attitude like that. If you hated Bitcoin or the endless bull market, you need to go see Yoda on planet Dagobah. Always keep an open mind and try to learn about the things you think are wrong.
  6. Time is your friend. Use it. Spread your purchases out and have levels you want to see hit. Don’t ever buy with one order. Sit on your hands, watch it for a week or two, buy some more. Or maybe it’s not moving like you wanted, so sell some and rethink your plan. The entire point of markets is to profit from the price you buy at vs. the price you sell at. So give yourself time to maximize that outcome.
  7. I did not make much money in cryptos. But I learned something I’ll never forget. For the first time in my life, I saw pure mania. I don’t care if cryptos are the future or going to zero, no one can deny the mania. If you ignored such mania, that’s at your own peril. Someday you will be rewarded for paying attention to the crypto boom and watching it unfold in real-time.
  8. Free cash flow still rules everything around me. I love fundamentals and I have had the most success looking for companies with growing free cash flow. I don’t plan on giving away too many tips here, but this post does a good job explaining free cash flow to the newbs out there.
  9. Everything is relative in markets and you can’t ever forget that. Let’s pretend I have a tech company and an oil & gas company. The two companies have the same net income statement. But their balance sheet is totally different. One has massive machines, equipment, and insurance liabilities and the other has a bunch of computers and coders. The relative cost, in my opinion, of owning a oil & gas company vs. a tech company is insanely high. Always ask yourself about holding a company in one industry vs. another.
  10. Find companies that understand user acquisition and hold on to them. This a gold rush and still no one understands it. I am here to make money in it. Listen, I work in digital marketing. I can tell you because I have seen it. Companies that understand this right now are in for a massive advantage down the road. The industry is still so new and ripe and a few companies are really winning at this.
  11. Don’t try to impress the market. I know way too many people who are trying to find complicated ideas, or trying to search far and wide for that one unknown company. It’s not necessary. It’s true when they say the best ideas are usually right in front of you.
  12. Covered calls are both the best and worst thing a long-term investor can do. I made a lot of income selling calls last year, but toward the end I basically gave it all back buying a few calls that exploded. They’re an amazing way to generate income. Pick a target you want to sell at, and take the premium. If it hits, hey you agreed to it. But the pain is real when your stock starts ripping above that target. Covered calls are your best friend who always has your back when you need money and your worst friend who screams and gloats every time he beats you in 1-on-1.
  13. Three rules for trading covered calls for the long-term investor: don’t overtrade covered calls, don’t get into a cycle of rolling them out, and if your target gets hit and you made a nice premium be happy — you agreed to it and it worked. Not many times in life does exactly what you want happen.
  14. Two ways to become a better trader by using covered calls: if the stock goes against you right away consider selling a call to lower your cost basis. If you’re a short-term trader, selling a covered call at a specific price and day can lock you into your trading plan.
  15. Selling puts is a great way to get into a position. Selling puts will stop you from making impulse decisions. You don’t need to buy the stock outright, right now, at that moment. Take a second to look at some puts and levels you would be a happy buyer at. Selling puts is a great way to slow down your decision-making.
  16. Every trader turns into an investor at one point in their lives and that is a good thing. They say, “don’t make a trade an investment” but I would argue the best way for a trader to learn about markets is to turn a trade into an investment and then spend several months trying to figure out how to get out of the position, where they went wrong, and what the market is pricing in.
  17. Betting small and controlling risk is everything. It’s also one of the hardest things to do. Everyone wants to bet everything at some point and make it big.
  18. To take a few words from Buffett, if you found your Lebron James, meaning the stock you researched, followed, and are most-interested in, don’t bet small just because you are taught to. The Cavs would never not pass the ball to Lebron just because traditional basketball rules say ball movement and teamwork is good. Lebron is your star, that one stock is your highest conviction, so let them go to work.
  19. Anyone who buys a stock without totally understanding it or at least using similar products to it, is not thinking straight. Always understand what you own.
  20. When you finally get a big winner, say up 100% or more, a dip feels like nothing. A 10% correction after a 100% up move is laughable. I now believe the path to being a great investor is to see this first hand. It is a right of passage.
  21. Beware stocks or assets that everyone gets super excited about in a very short period of time. Once the excitement dies, that asset is bound to suffer.
  22. In bull markets, multiples are not that important. What’s more important is cash flow growth and especially revenue.
  23. In bear markets, multiples are everything. Cash becomes more important, so does earnings stability, and strong balance sheets.
  24. Always be on the right side of technology. Avoid stocks that have no understanding of where technology is going.
  25. The 3-day rule will save you forever — never buy a stock after a big drop. Always wait at least 3-days. Try it once and you will come back to this post and press the clap button hundreds of times. You’re welcome.
  26. Never try to be a momentum trader without a stop loss. Yes, I tried momo trading once in 2017 and the second the trend turned, it was vicious. Lesson learned. But Charlie Munger might tell you to invert this lesson. So maybe the best dips to buy are those on momentum stocks because the flush and downturn is that much more extreme. Just something to think about.
  27. Don’t forget bear markets happen.
  28. The shoe shine stories are over. John Kennedy Senior heard his shoe shine boy talk about stocks once. That was his sign to sell. A few days later the Great Depression happened. News spreads faster than ever now. These anecdotes are worthless. I actually think today the shoe shine boy knew about Bitcoin before you did.
  29. Adding to an uptrend is absurdly hard but if you’re a wild man with conviction in a stock, and a YOLO lifestyle, this could be on the way to serious wealth. I was not able to do it once in 2017, but someday I would like to. It is very hard to do. I know someone who does this, and they did very well in this bull market.
  30. You will never call a top. Those who do have tried several times before and they finally got one right. Always fact check top callers.
  31. Because you will never call the top, the better strategy is to just always have levels you would sell it. Have targets on the way up, and targets on the way down.
  32. Psychological levels matter — $50! $100! $200! It sounds so silly but just think about it. People rarely say, “I am going to sell this stock at $48.33.” Instead, they say “I think when this hits $50 I am out.”
  33. Ignore headlines.
  34. Headlines are noise.
  35. News is noise.
  36. People are so thirsty for narratives. A market drop does not always have to be attributed to some event or news story. Sometimes it really is random. Leave it at that.
  37. The balance sheet is your margin of safety.
  38. Understand stock based compensation and how companies use that to hire employees and factor that into their earnings per share.
  39. Jealousy and greed do not drive the stock market. Envy does. Someone hears about someone else getting rich in Bitcoin and they get envious. They want that same wealth. And so it begins, they go buy Bitcoin.
  40. Moments of mania will always get more maniacal.
  41. The market loves derivative trades. When Bitcoin was spiking, so to were “Bitcoin” stocks. It was an easy way to join the mania and people loved it. However, these derivative trades tend to be dangerous and fast money. Never buy and hold a so-called “derivative trade.”
  42. Only short using options. Your risk is defined. Buy some puts but remember it’s impossible to time a top. So your puts need to have a long enough timeframe. Always have at least some small percentage of your portfolio in protective puts for when the market finally turns.
  43. Don’t trade options without ever knowing the dividend and earnings dates first. Write them down and study them on the options chain.
  44. Never trade options at market orders.
  45. Volume is still a great tool to look at on charts. Especially if you are breaking it out by up and down days.
  46. Know how many shares are in circulation and who owns them. Know the capitalization structure of your company. Or at least know who the biggest holders are and the institutions involved.
  47. Sometimes a narrative or a story can sell better than an income statement. Tesla is a very extreme example of this. Don’t fight strong stories or narratives.
  48. Always follow the flow of money. How many people are working in America at any given time? How many people are investing? If people are working and depositing capital into their investment accounts, the market has no other choice but to BTFD every two weeks.
  49. Bull markets make people feel smarter than they actually are. Always know when you’re living pure luck. I know I benefited from luck this year.
  50. Don’t talk about your investments, especially how much you’re up or down. I am guilty of this at times. In some ways I did it with this post. But don’t do it. It’s really not healthy for you or the people around you. Markets are not a tool for bragging or gloating. They are a place to build wealth and do something meaningful for yourself, family, and loved ones.

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