Welcome to the stock market! In this article, I’m not going to overwhelm you with numbers. I don’t want to scare you with math. Yes, there is work to be done in equity investing. But the most important thing is to overcome your fear and take the plunge. Don’t be afraid to fail. This is how we learn.
Let me tell you about my first investment to explain what I mean. It was in 1998 and Amazon (NASDAQ: AMZN) the stock was going crazy. It went up all the time. And I wanted to buy the stock, I really did, but the sacred thing kept getting more expensive. I was excited but also aggravated. I wanted the title to be cheaper, but it continued in the opposite direction. Finally, I said the devil with it, I jumped and bought stocks. And it was so much fun to be an investor on Amazon.
People will tell you, “Don’t fall in love with your actions.” And I always thought it was good advice. But after more than 20 years of stock trading, I now realize that boards actually need adjustment. Let me suggest an alternative. Go ahead and fall in love with your actions – as long as you choose the right actions.
It’s like falling in love with your spouse. Good idea, right? Just choose the right spouse. And there could be dark days, like when Amazon lost 90% of its value. I divorced from Amazon in 2002. It was not a bad divorce, I just needed money. But boy, oh boy, oh boy, I wish I could have stayed true to my Amazon. Its value increased by 10,000% after my departure. I could find the exact numbers, but I’m too sorry to even try.
This is my lesson. Love your stocks. And make a commitment.
Here are two titles that I really like, and maybe you do too. (And if these two stocks look like Amazon, well, it’s just a coincidence).
1. Shopify: I will love you forever.
The way I discovered Shopify (NYSE: SHOP) It was the same way that I discovered Amazon: I copied what Motley Fool co-founder David Gardner was doing. Now it’s cheating. It’s wrong. It’s bad. You should make your own investment! This is how you learn. But, honestly, I always like to take a look at his portfolio and see what he buys.
One thing I will say to all cheaters, when you copy from someone else, make sure they are smarter than you. Don’t just copy from a random person sitting next to you. Copy the best! And remember that even the best investors screw up – all the time. So go ahead and copy, but don’t forget to use your own judgment.
The main reason I bought the stock from Shopify is that Amazon tried to compete with them – and lost. In 1998, when someone said, “Buy.com is going to defeat Amazon,” I pulled milk from them. This kind of thing simply did not happen at the time. “Mighty Amazon has a monopoly and everything will fall before it,” I said. And people would correct me and say I didn’t know what a monopoly was, and Walmart was going to destroy Amazon as soon as Walmart developed a website. It was ridiculous. I had to stop drinking milk, it’s like it’s bad.
So skip a few decades and I’m researching this idea of investing in stocks that I stole (again) from David Gardner, and I read that Amazon did admit defeat and recognized the power of Shopify. And Shopify always wins. Oh baby! You’re amazing. I’m so glad I bought it.
2. Carvana: You are so wild!
You may not know it, but at the time, Amazon had a lot of shorts. These are negative negations that “borrow” actions for a fixed period, then sell the stock to others, keeping the product in cash. The short seller hopes that the price will drop over time, creating an opportunity to buy back the stock at a price lower than the original sale price. Any money left over from stock redemption is a benefit to the short seller.
It was like “sell first, buy later”. Is this a crazy business plan or what? And you might think that the shorts will never buy because they are crooked and evil, but in fact, sometimes the brokerage they have borrowed forces them to return the borrowed stocks at an inconvenient time (this is called a short press, and that’s great). Amazon had a very high short interest at the start and this made stock prices very volatile.
Carvana (NYSE: CVNA) is very short-circuited. About 45% of its float (available shares) is sold short. This means that there is a lot of negativity and pessimism about Carvana and its activities among Wall Street traders. The stock goes up, goes up, goes up and down, goes down, goes down a lot because of that. Carvana is one of the best selling stocks on the stock market. Most of the stocks that are highly exposed are justifiably horrible stocks. But when you find a awesome stock very shorted? Oh, man. All of these short sellers are now future buyers. It’s like having a wedding, and shorts pay for it.
You see, Carvana is a rule breaker. That’s why shorts hate it. The company has bet that the Internet can and will transform used car sales. Yes, there are now used car dealers on the information superhighway. And Amazon isn’t one of them. It’s not like Amazon has abandoned and sold the used car space to Carvana. Amazon took a look at the auto retail business and said, no, not us, no sir. That left an opening, and Carvana zoomed right in on it.
Of course, the big question is how many of our used car purchases will be transferred over the Internet. My answer is, very much. When we are online, our selection of cars is vast and the whole process is easier, faster and more fun. I am a big supporter of this paradigm shift. And when there is a huge change in a company, you buy the company that is causing the disruption. You buy Amazon and avoid Barnes and Noble. You buy Netflix and avoid Blockbuster. And you buy Carvana and stay away from CarMax. And of course, you avoid Cars.com, the Buy.com of 2020. When people tell me that CarMax is now on the Internet, all it does is validate my investment thesis that a paradigm shift is happening.
Carvana has been an incredible stock – until this year. Now it is down 45% in 2020 due to efforts to fight the coronavirus pandemic and short sellers are starting to pile up. If you bought a car on Carvana and liked the experience, this is a great entry point for the stock. Best wishes and have fun.