My First Year Investing with Robinhood

One of the biggest roadblocks to trading for small-time investors is the commissions you pay to brokers. Usually it’s something like $4.95-$9.95 a trade (once when you buy, again when you sell). When you’re dealing with small potatoes, that fee is gargantuan. If you tried to invest a small bit of cash (say $100), you’re losing 10 to 20% of your investment before your stock goes up or down.

That is no longer an issue for those looking to invest for retirement, with most firms like Charles Schwab, Vanguard and Fidelity offering free trades with their own house funds. For those of us that have an itch to trade individual stocks, however, it wasn’t until Robinhood came along that commission-free trading was a reality.

I have two main reasons for wanting to trade individual stocks:

Researching individual companies, finding undervalued stocks, and putting your chips on the table is exciting to me. It’s a fun hobby. I can let my 401(k) run in low-cost index funds, while I play with pennies and test my wits against the market.

Here is how I did in my first year of individual stock picking:

This was the stock that started it all last June. Kroger’s shares got absolutely hammered by a poor quarterly earnings report and then Amazon purchasing Whole Foods. In two trading days, the stock had lost nearly a third of its value. While reading the news about the stock’s decline, I thought that the market hammering Kroger stock for Amazon’s entrance into brick and mortar retailing — at a specialty, high-income grocer like Whole Foods, seemed silly. Kroger is a store for average, every-day working stiffs. It did not seem to me that the two companies compete against each other heavily for the same customer.

I bought 10 shares at $21.89 on June 16, 2017. I aimed to sell the shares if it returned to trading around 15 times earnings, which I view as fair value for a stable, well-managed grocery store. The shares fluctuated quite a bit in the ensuing months and hit lows of under $20 a share in the fall of 2017. Towards the end of the year and into 2018, however, the shares rallied on positive quarterly earnings and general investor excitement about the corporate income tax cut passed by Congress.

I sold my 10 shares at $30.40 on January 25, 2018 when the company’s stock was trading at my 15 times earnings price target. Including dividends, I earned a 39.9% total return on my investment. It has been my most successful trade to date and encompasses most of my total return.

This trade is similar to the Kroger. The company reported poor earnings in August 2017, sending their stock plunging.

I bought two shares at $19 on August 25, 2017 with the assumption that the drop would bring in new buyers attracted to the company’s generous dividend. I aimed for a 10% total return (including dividends), which came to pass on September 18, 2017.

I did not want to hold onto the stock for too long or make any “big” bets, considering there are real concerns about the company’s long-term health in the face of digital downloads.

With this trade, it wasn’t that it was “bad” — it was profitable. The problem was that I did not have an articulate plan for why I was in the stock or why I thought it was undervalued. I was also too worried about being over-concentrated in one sector with my earlier purchase of Kroger.

I bought one Costco share at $155.40 on July 7, 2017, with a similar thesis for my trade as Kroger. The company was getting hammered due to Amazon buying Whole Foods, and I did not buy that Costco would be meaningfully impacted by this move.

However, I was worried about the stock’s valuation. The stock traded at about 30 times earnings, which for my value-oriented mind was potentially too high, even with their respectable sales and earnings growth. I ended up selling out on September 18 at $162.38 for a 4.81% return (including dividends).

The stock now trades around $207.32 a share, including $1.57 in dividends paid since I sold. I would be up 34.42% if I had simply held onto my share.

Shortly after my Kroger trade and feeling awfully sure of myself, I decided to buy into Vanguard’s Emerging Markets ETF (VWO). Emerging market equities (and international stocks in general) trade at a discount to U.S. shares, and I figured they had more room to run higher after a excellent 2017.

I bought it right around the absolute peak of its value on January 25, 2018, buying 6 shares at $50.62. Almost immediately, markets fell around 10% across the board and this ETF has not recovered since.

The lesson I took from this trade is that I shouldn’t feel the need to be fully invested all the time — sitting in cash is OK until I get a new trading idea. Additionally, investing in ETFs in my “fun” stock trading account defeats the purpose in some ways.

I ended up selling out of the ETF to raise funds for a few new stock trades, but in the end I lost $30.34 on VWO (total loss of just under 10% including dividends).

I earned $4.10 (2.99%) on my one share of VTI, and $3.38 (3.87%) on two shares of VEA.

The benchmark U.S. investors hold themselves to is the S&P 500. Including dividends, from June 16th, 2017 to June 15th, 2018, the S&P 500 returned a healthy 16.18% in total return for investors.

Including dividends, I earned 30.24% in total returns over the same time span— an over-performance of just over 14% compared to the S&P 500.

To be clear, I attribute this more to luck than any skill. I could have been far more diligent in reading the company’s annual reports, listening to earnings calls, and the like. One year in the market is a blink of the eye.

But I think I have done a great job of “staying in my lane” — investments where I understand the business and how they make money, and most importantly, sticking to investing in profitable companies that for one reason or another are temporarily out of favor with investors.

I will not delude myself into thinking that this over-performance will continue into 2019. I will continue to try to find undervalued, profitable companies trading at low valuations. I believe that will limit my potential downside and could prove profitable for me.

In the near future, I will have a post exploring the investment theses for my current Robinhood holdings. I hope you will join me!

Related posts:

Facts on Atomic Bombing on Hiroshima:. “Facts on Atomic Bombing of Hiroshima And Nagasaki” is published by Winknowledge.

Before hooks were invented, class components dominated the landscape for React developers. React’s lifecycle methods were only accessible to class components thus making classes the only option to…