I’m getting worse and worse at writing titles. My upcoming title ideas include, “Paint still dries” and “The Sun Also Rises.” I hope no one takes that last one, because I think it could be big someday.
When something is expected it doesn’t catch the eye. So while this may seem like a boring article on the surface, I’m going to go into detail about two times I went to (relative) extremes with dollar cost averaging. Did it work out? The title may give you a hint, but you’ll have to read on to find out.
This is a difficult for me to write. I have two conflicting thoughts when it comes to investing.
The first is that I want you to focus on what I think you should do, which is very, very different than the second… what I actually did.
So what you should do is read and follow this investing article: Investing is Boring. We’ve already established that the boring title of this article didn’t scare you away, so you shouldn’t have a problem with that article, which is quite entertaining. Go Curry Cracker has a one step plan for investing. You don’t need to do much or learn much and it’s the kind of thing I often wrote about when I created this website long ago:
You should be Lazy with your money.
Alas… sometimes I don’t do what I should do.
I live a boring enough life and sometimes I spice it up with nerdy, money, investing stuff. That means that I don’t do the boring investing stuff… at least not all the time.
I have a section of my portfolio that I trade in *gasp* individual stocks. This is all retirement money that we have no plans to touch for years. It’s just a section and the rest is in boring index funds. My wife is in all index funds.
With most of the individual stocks, I also do boring things like buying and holding big companies. For example, I have held onto Google, WalMart, and IBM for years now. I’ve recently gotten into GE and P&G.
However, today I’d like to tell you about a couple of stocks that aren’t like the others. They haven’t been boring at all.
In each of them, I lost half my money on the initial investment. In each of them, I “doubled down” and bought a lot more and more as they hit lower and lower prices.
And while dollar cost averaging may be about buying more on a consistent basis, it amounted to about the same thing.
Stock 1: United States Oil (Ticker: USO)
I bought this before I knew of oil futures, backwardation, or contango. (It turns out that contango isn’t when you ask someone to do a ballroom dance in Spanish. Who knew?) I didn’t even know that the US was making a lot of oil through shale.
I wasn’t very informed and didn’t make a smart decision. However, over time, I learned about these things and while it gets complex, I became convinced of two things:
- Oil isn’t going away (just yet.) We aren’t quite there with self driving electric cars, solar, and other things. Maybe in 10-20 years, I’ll think differently
- Oil got extremely cheap. There was just so much supply from the shale and the world wasn’t using it enough. I think there was concern that it would cost more to store than it was worth. It crashed below $27 a barrel two years ago.
I first started buying USO stock at $21. I subsequently bought it 11 more times as the price moved down and down. Eight of those times I bought under $15, and three times I bought significant amounts under $10. When all was said and done, my average price was $12.69 a share.
That looked terrible when oil was trading at $8.82. However, on Friday it traded a little above $15. I could sell the whole batch, and end up with a nice little gain. Perhaps I should have. Maybe I’m getting greedy.
Instead I have sold off bits and pieces while I was in the black. I sold some on Friday at that $15 price. If it continues to go up, I’ll just keep selling shares and taking profits. If it goes down, I may want to wait a little longer.
Stock 2: Twitter (Ticker: TWTR)
I’ve always been a big believer in Twitter as a company. (Read what I wrote about the IPO in 2013.) It’s got so many celebrities using it for free! It’s got television hashtags so people can talk along. It’s completely changed the way I watch football and as my wife can tell you, that’s nearly impossible.
And that was just the Twitter stuff that was happening back when I started buying it a couple of years ago. There’s politics and equality movements going on. I’ve even learned that there are personal finance bloggers who are willing to share their stories and opinions about MLM scams. I feel like I found my community. (That may seem weird because Twitter is also known for making it easy for others to bully and just spout out lies to change perception.)
I bought Twitter stock for the first time at $47 a share. I then bought some more in the $30s range. I then bought a little more in the $20s range. Overall, I bought 11 times. Fortunately, 4 of those 11 where around $16-17. My dollars went a lot further buying down there than did at $47 a share.
By the time I was done, my average price was around $23 a share. Like oil above, it looks terrible when the stock is still trading at $17 a share.
On Friday, Twitter stock was trading above $43. It has recently been as high as $48.
It’s not an understatement to call it the turnaround stock of the year… and some of that goes back to last year. Like with oil, I’m starting to sell a little of it at various milestones. However, I still believe that Twitter could be one of the next tech giants, which could give it legs to double or triple even from its already relative high level. I don’t see oil tripling to top $200 a barrel soon.
These two stocks had something in common… I didn’t see them going away. They were too big to fail. (You could say that Twitter could have failed, but they had the cash to run for 412 years.) And while there is a saying that the market can be irrational longer than anyone can stay solvent, I was okay with waiting a decade or two on them.
They had something else in common, I ended up owning much more of them than I had wanted to. However, I didn’t feel that the business of them fundamentally changed (well maybe I did with oil due to the shale stuff). Still, both holdings were getting to be such large parts of this “play” section of my portfolio that it dwarfed anything else.
As I sell off shares of them now, I’m able to lock in some gains. For now most of the money is staying in cash or bonds because I’m a fearful of how expensive the market has gotten in terms of it’s Shiller P/E.
One could make a case that Twitter and USO were “cherry picked.” I’m still waiting for IBM’s day to shine. It’s at its low and I’m thinking about buying more, but it’s still only down around 10% for me and it’s paid very good dividends over that time. It feels like a different story as it didn’t drop in half and I haven’t bought in nearly a dozen times.
Also, there’s the case that sometimes a company doesn’t go back up. More than a decade ago my shares of Palm, Lucent, and Worldcom didn’t recover. (Actually I’m not sure what happened with Lucent.) It’s looking like my GE investment is going to be where it is for quite some time as they restructure their businesses. That’s the risk I suppose
Finally, one could look at this whole thing and realize that while my money was tied up in oil and Twitter, the mix of my boring US and International stocks had been going up all along. I haven’t looked back to see what the 3-year returns on Twitter and oil, but I’m guessing through the highs and the lows a boring portfolio of index funds did about as well as they did combined.