How Market Timing Lost Me $200K | White Coat Investor

[Editor’s Note: Today’s guest post was submitted by Ian Cook, an Emergency Physician who blogs at Carpe Diem, MD. Every quarter, a bunch of guest posts are submitted to WCI and we select the ones that we think will help our readers the most. There are a lot of lessons to learn from this post, and not just the ones Dr. Cook learned from his experience. See my note at the end for more details. Dr. Cook and I have no financial relationship.]

It was November 2019 when I received a call from my “financial advisor”. “Tesla is up. Right now is a good time to sell. Take some profits.” I was on the fence….

 

Handpicking Stocks

Tesla was the first stock that I ever bought. I bought it in 2016 after buying a Model X. The car was amazing, the process of purchasing was simple, the performance of the vehicle was unparalleled.

I wanted to follow the Oracle of Omaha philosophy “Why not invest your assets in the companies you really like?”

Tesla was $350 and I bought $5,000. It immediately dropped. I bought more. Over the years Tesla would fluctuate like the tides of the ocean. With every dip I would buy more. Eventually, I invested $30,000 in Tesla with an average price of $300/share for 100 shares. I believed in this company. But I really had not achieved any significant gains in three years.

The investment world was completely split when evaluating Tesla. It was one of the most shorted stocks in history. Some analysts were predicting bankruptcy while others were predicting a $2,000 price target. The analysts could not decide if Tesla was a car company or tech company and they were incapable of evaluating Tesla’s stock price.

I was a believer and still believe that Tesla is a tech company with the ability to be bigger than Apple, especially if you consider the symbiotic relationship of Space X and Tesla.

You can envision a plan where Space X supplies the Tesla network via Starlink (satellite internet) and Tesla develops electric vehicles with full autopilot capabilities that can drive anywhere in the world.

Combine the millions of autopilot hours performed by active drivers with the above capabilities and it becomes clear that the competition is behind. Lastly, all Tesla owners have an app that can locate and summon their Tesla. This app can easily be converted to allow for autopilot ride sharing. (Watch out Uber and Lyft.)

If Tesla pulls this off, they will beat Uber and Lyft to their end game business model by developing the autonomous vehicle and a Tesla ride-sharing app. Tesla will have both the hardware (vehicles/Starlink) and the software (Tesla app).

Ever notice that Model 3s can be leased but NOT leased to own? My personal theory is that those will be used for the first Tesla-owned autopilot fleet, but I’m getting too off topic….

 

Timing the Market

So, what happened? I sold my $30,000 Tesla position in November 2019. Not because I did not believe in my investment but because I wanted to try and time the market.

I wanted to sell high and buy low

The problem is that it never went lower than $300 again…. I waited and waited and the stock climbed and climbed.

I bought back in at $450, $700 and $330 a share with a total investment of $12,250 at an average price of $408 a share. So, I ended up with less than half of my total investment at a high price per share because I wanted to time the market.

Tesla continued to climb to $1,5000 a share before splitting in 2020

My current investment $12,500 (130 Shares) is worth $75,000 a $62,500 gain

My initial investment of $30,000 (100 shares) would be worth $287,000 a $257,000 gain*

And that is how I lost $200,000 dollars in 5 minutes… ($194,500)

I sold a company that I believed in by trying to time the market. The smarter move would have been to hold my current position and add to my position on downturns. This was my initial strategy, and I abandoned it to try and gain additional profit. As a long-term investor, I learned that chasing short-term gains is an awful idea. Some would argue that investing in individual stocks is equal to gambling and they may be right. However, I do enjoy having a mixed portfolio of index funds and individual stocks. My wife Lauren’s portfolio is a stable Vanguard account, and we use my account for a more mixed portfolio.

 

Short-Term Rentals as Investments

2016 was a year of firsts. Besides buying my first stock, Tesla, we bought our first short-term rental property.

Our short-term rental property has been one of our best investments. The equity from that property has exceeded the growth of our retirement account portfolios, and we have been able to enjoy the property each year. We have shared great memories and experiences with family and friends all while building our net worth.

We purchased a $500,000 condo with $50,000 down (10%) that is now valued at $800,000. The STR income covers the mortgage and expenses, resulting in a significant return on our investment.

Our short-term rental is a buy-and-hold strategy that has worked out well. I wish I would have kept to that strategy with Tesla.

The moral of the story is trust your instincts and own your decisions when it comes to investing. I believed in Tesla and chose to try and time the market by selling my position. Everything in that sentence is wrong, and I paid the price.

I own that decision and have learned from it. I also learned that investing in short-term real estate can be a profitable and enjoyable experience. Our real estate and stock investing journey began at the same time. We have done better with our real estate investing. The stock market remains a proven source of wealth generation, but we prefer to diversify our investments.

Lauren and I practice a mixed investment strategy between retirement accounts and real estate. In real estate, we diversify further into Short Term Rental properties and Long-Term Multifamily properties. Our focus is on building our Short-Term Rental portfolio to increase cashflow and fund our additional real estate investments.

We believe that Short Term Rental properties are a great way for high-income professionals to begin investing in real estate.

*Tesla stock analysis performed on November 25th 2020

 

[Editor’s Note:

1. I agree with the OP that a buy and hold investing strategy is a much better idea than a market timing strategy.
2. I also agree that investing in stocks and real estate is a great way to reach financial independence. 

However, I see a lot of other lessons that this post demonstrates well that I think every WCIer should learn. I’ll list them below:

1. You aren’t what you drive.
2. Don’t invest emotionally. Stocks don’t care who owns them. Buying stocks you’ve heard of works well when well-known stocks are outperforming, but not so well when they are not (and there are times when they do not.)
3. Don’t invest in individual stocks. At all. At least not with real money. Don’t take on uncompensated risk.
4. Don’t take advice from brokers or anyone else who recommends you invest in (much less trade) individual stocks. There is no price too low for bad advice.
5. Remember that direct real estate investing has aspects of a second job.
6. When you own short term rentals, you are not in the landlording business, you are in the hotel business. If you thought landlording required a lot of extra time and effort, wait until you run a hotel.
7. If you are putting additional time and effort into your investments, subtract out the value of that time when calculating your returns. The more valuable your time is, the lower that return will be. The more valuable your time, the more value a property manager can bring you.
8. Those who invest in my favorite mutual fund, The Vanguard Total Stock Market Fund, bought Tesla stock shortly after the IPO in 2010 at approximately $17/share (<$4 when accounting for the split awhile back) and then rode it to almost $800 a share before its recent drop under $600 this week.
9. Remember that there will always be something you could have bought that would have provided higher returns. Don’t let FOMO convince you to performance chase. You didn’t “lose money” every time you missed something that “went to the moon.” There are no called strikes in investing.]

What do you think? What lessons did you learn from this doc’s experience? Comment below!