My nerd friends all say they’re interested in the stock market but have plenty of excuses about why they haven’t started investing yet. Many of them are nervous about putting a substantial amount of their savings into something that they don’t fully understand. This is how I felt for years before taking the plunge. But if you can afford it (you don’t have any high interest debt and you have emergency savings), now seems like as good of a time as any to jump in. I’m going to try and give some nerd insight into my experience researching and buying my first stock, what I learned, and what I would do differently if I was starting out now.
I had been following the market on and off for about 4 years when I decided to buy my first stock. I would build up a Yahoo Finance watch list, get nervous, lose interest, and then do it all over again. I’d spent those 4 years working and saving, at least, so when I familiarized myself with the market again and grew the balls to actually do something about it, I had money to invest with.
My dad had advised that my first stock should be a solid company with low to no debt that has been consistently making money, so I can practice keeping up with news and financial reports without worrying about chasing a trend. This seemed easy enough, so, as I read through the news and advice columns, I built up yet another watch list. My list had about 20 companies on it that I had found through discussions with friends and recommendations from advice columns I liked.
I was reading a book about Warren Buffett at the time and his practice of only buying stock in companies that he could easily understand struck a chord with me so I decided it would be a priority in choosing my first stock. I first looked at Buffalo Wild Wings (BWLD) because I’m a big fan of the Midwest franchise and they’ve been growing consistently. Their financial reports had a lot of talk about year-to-year same store performance and how new stores aren’t profitable for about 3 years, which I found difficult to understand. If a new store wouldn’t be profitable for 3 years, then how would I read into the change in same store sales figures? I had the same problem with Whole Foods Market (WFM). I loved the idea of investing in the popular organic and local grocer and they have plenty of growth potential, but I didn’t feel like I understood how to read into same store sales in relation to the company’s health.
This ruled out stores and restaurants, so I was now looking for a simple company that produced easily tracked results. Then I found LaCrosse Footwear (BOOT), and they seemed perfect. At the time, in early February, they were selling at a premium of about 17 times earnings (P/E), had a small market cap of just $115m with plenty of room to grow, and their revenue was growing steadily. Their annual financial report revealed that they had recently invested in their manufacturing facilities to keep up with growing demand. They sell boots for work and outdoors and to the military, which I could easily understand; they had no debt; they seemed poised to continue their steady growth; and they offered a $0.10 dividend! A match made in heaven. I bought 100 shares and I was officially an investor.
Since then the stock has gone down 30%. There was a significant reduction in military orders that, even with an increase in consumer sales, hit their revenue hard. Then the stock market dipped. Each time the stock dropped, I looked at the reasons why and had to decide whether it changed what I thought about the company. It hasn’t and I still own it, with the intention of owning the stock for its long term potential. If I had to do it all over again, though, I would have picked a company with a bigger market cap. I’ve learned since that small cap stocks with low volume can be stagnant and often require to be held longer. I would recommend a new investor go through a similar thought process as I went through: reading financial reports and looking for a company they understand and are interested enough in keeping up with.
If I had invested in Buffalo Wild Wings or Whole Foods, I would have had 21% and 13% gains, respectively. Of course I’d rather be up than down, but the reasons I invested in LaCrosse still are relevant. We nerds are smart. We are not spooked by short term fluctuations, even if it’s 30%. We can’t predict the future, but we can act logically and reasonably. I went into my first investing experience with the expectation of leaving it there to grow for a significant amount of time. Warren Buffett (might want to take a look at his company by the way) always says his ideal holding time is forever, after all.
So, now it’s your turn! If you don’t have the money but are still interested in it, go ahead and start a “watch” and “buy” list for your own fantasy investing. Whether you are investing with real or Monopoly money, which are you looking at for your first stock? Or if you’re a seasoned veteran, what advice would you give investor n00bs that you wish you were told when you were making your first investment?
This column should not be construed as recommending or advising on specific investments. The views and opinions expressed in this article or column are the author’s own and not necessarily those of Nerdist Industries; No endorsement by Nerdist Industries of any advice or trading strategy is implied.