How I Got Started Investing

On numerous occasions lately, the discussion or question as to how I get into investing has come up.  “Investing” is one of those topics that it seems every guy wants to talk about, yet I have found that very few people really understand what it means or entails.  Further, the fact that this ambiguous term means essentially something different to each person also makes this a subject almost like religion or politics in today’s society. 

Without getting too philosophical or sounding egocentric in what I am saying (I am not bragging at all; just describing my background), a number of people have seen my trading screen in my office or sat with me in the breakroom watching CNBC while eating lunch and asked why I watch the markets so much.  Usually, I just say it’s because I just like watching this kind of stuff (indeed I do), but occassionally I will actual explain the fact that I am an avid investor.  I leave out the fact that I easily spend more time throughout the day thinking about the markets than I do anything else it seems, but without explaining in detail what my ambitions and goals are, most just kind of shrug it off.  Again, this is why I typically just don’t even go there.

As I was thinking about it, I thought it may be a good topic to write about, because where people got their start and how they gained experience in this business is a topic of discussion amongst investors, traders, and general business/finance types that do anything within the world of finance. 

I realize that many people don’t care about investing or managing their own money.  The far majority of people in the world don’t have the ability to invest at all.  Of the small percentage of Americans and Europeans (and other nationalities) that do, the far majority of them do not manage their own money.  They prefer to leave that to their financial advisors, brokers, financial planners or simply their 401Ks.  This is just how it should be, and I sincerely wish that more people throughout the world could have the ability to do this. 

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Sidebar:  This is why I think NGOs that provide microfinancing services are some of the best organizations out there and most effective at battling poverty throughout the world.  Providing the opportunity for individuals to invest in themselves by receiving a relatively small and inconsequential loan, which can ultimately lead to the development of a successful business, is the essence of true market capitalism, in my opinion.  This is economics at its purest and it’s absolutely fantastic.  I have done a small amount of research on microfinancing in Sub-Saharan Africa, and if I ever can start that foundation that I want to do later in life, this will undoubtedly be a signficant component thereof.  More on that later …

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I am not one of those people, though, who gives up control of managing their funds.  I have done that in the past, and did fine, but ever since I got started investing a number of years ago, I knew it was something I love and that passion has only grown. 

Let me also point out here that a passion for the markets alone is no reason to manage your own investments.  It requires a great deal of effort, time, learning, experience and just hard-nose dedication.  You have to want it, you have to like it, and you have to be willing to work for it.

With that said, I opened my first trading account with Datek in 2002.  I was in my second or third year of undergrad, and my buddy and I were doing separate internships, but we ended up trading together more than worked at our summer jobs (I did, at least).  We would call each back and forth 10 times a day.  He had much more experience at it than I did, so I was learning from him and following his lead.  It was an absurdly small amount of money too.  At one point, I think I was down to like $100 in my account.  Obviously, not an effective way to make money, but I can’t think of any more effective way to start learning. 

This is where I started learning about the markets and every lesson I learned was from something negative happening (i.e., losses).  But, when you’re losses are like $10 (as opposed to $10,000), it’s not too painful.  I know, I know … accepting losses is heretical to traders, but I’m talking about my first experiences here and trust me, I learned more from these experiences than I ever could any other way.

Let me take a second here to describe what it was that made a political science major so enamored with public securities trading and investing in the public capital markets that he would risk his money he should have been spending out with his friends.  While I did my fair share of goofing off during college, the entire time I really just wanted to get through it, so I could get out and make some money in business.  I was always very entrepreneurial (in high school, my friend – the same one mentioned above – acted like the school’s mafia, running a sports booking service for our classmates.  We even went as far as getting one of the football players to do our collecting for us.  Not exactly the most ethically friendly thing, I know, but looking back, it was very entrepreneurial), whether it was as a young kid following my mom around the political world and working on campaigns, various jobs in high school, starting my own consulting practice in college, or e-trading. 

The coolest thing about managing my investments online was that any person, regardless of age (18 older, I guess), experience, credentials, etc could open their own account and trading operation.  Now, just like anything, if they don’t know what they’re doing, they won’t be up and running very long, but to me it was the coolest thing to be able to make money online doing something that I always thought of doing.  Was doing it just because I could the best reason?  Absolutely, not and that wasn’t why I was doing it.  But, as I was sitting at my desk during my little summer internship and secretly researching companies instead of working, I felt like I was learning something and making money at the same time, not to mention enjoying it thoroughly.

As time has passed, I have learned there is much more to it than just setting up the account and going at it, but as a beginner, that just attracted me so much, and was incredible encouragement to getting me where I currently am, and I know it will be a major factor in getting me to where I want to go.  I still think it is so cool to open up my trading screen each day and to spend time doing my analysis, putting my experience and education to work in making money.

Back to the backstory, though, I goofed off in my classes throughout college, thinking more about what I wanted to do outside of class, meaning the money I wanted to make through various business ideas.  During my last year of college, I began to limit my trading focus and instead decided to get back to politics, which was the world I had grown up around and thought was what I wanted to do after college.  It was also election season and I aimed to go out on a campaign after finishing school.  That last year, however, I went as far as setting up a boutique consulting practice, harnessing the experience of my other best friend (who he and I grew up around politics together our whole lives), as well as that of my mom, who was a career political consultant and Congressional Chief of Staff. 

That endeavor went well, in terms of allowing me to work within politics, make some money, and once again, learn one of those lessons that is most valuable (i.e., through failure).  This venture was not a failure for me, but many of the campaigns that I worked on or contributed to were losses, which isn’t exactly a failure, but were discouraging none the less.  The lesson that I learned, though, was that I really did not know what I was doing, from a business management standpoint.  I had learned a lot about political strategy and I had learned about the markets, but I had no clue how to manage a business. 

During this time and as my political work continued shortly beyond college graduation, I also realized that I did not want to work in politics.  A job whereby one must work 18 hour days in bad conditions doing jobs that really are not fun, all while being away from your home for extended periods of time and making practically no money, was easy to get tired of.  I burnt out quickly, but that is not uncommon, especially since I had been around that world my entire life, and I really wanted to do other things, including getting back to the world of investing.

One thing I did not do well throughout this time was make the effort to get more business and finance education.  It’s all relative here, because most will tell you that they learned more on the job than you ever can in the classroom, which I agree with, but I should have been more dedicated early on to understanding the principles behind finance and the markets.  It wasn’t until after I had been out in the corporate world for a couple of years that I started realizing this and taking the time to get back to basics, so I could understand the more advanced things that I wanted to do.

After working in the 2004 campaign cycle managing a statewide race, I left politics for good and was hired as a “Financial Analyst” for a large financial brokerage focused primarily on real estate.  I was working within the firm’s consulting division, because I did have some management (i.e., think project management) experience, but it was interesting that I was hired with this title, because I had very little financial experience, no accounting knowledge and I admitedly worked a total of maybe two days on financial related work in this job.

That was fine, because I got the best experience than I could have ever imagined in this work.  I learned more in one year than I learned in four years of college and all my years around politics.  I essentially received an on-the-job MBA in this job, because it was great work to learn on and I had awesome teachers and mentors in my role.  Most of all, though, I was empowered to make decisions, but they had to be informed decisions.  Also, I was allowed to fail, and when I did, they rode me for it, but in a great way that helped me learn and not to do it again.  My mentors there gave me responsibility, but it was up to me to make sure that I used it right and ultimately delivered. 

It was during this time that I started to get back into watching the markets.  I wasn’t ready to start putting more money into trading, because I had, by this time, realized that there was way more that I needed to learn.

I eventually decided to leave this job, although I really enjoyed it, because I had the opportunity to join my family’s business, where I knew I would be able to do something.  This was going to be my path into the real world of investing and finance, even though I didn’t know at the time how it would work out. 

Ultimately, I am still very young and early on in my career.  I am working in the family business, which has grown considerably (and certainly is no longer that small family company it once was), and I am starting to be able to do my own things.  My money management endeavors have grown, as I have grown.  I am finishing my masters, with which I decided to do a novel thing of actually going to grad school to learn something, rather than just go to network and make contacts (although I have done that too).  I have been dedicated to being a sponge, learning everything from the  basics to advanced tools that will help me be a better investor and trader. 

Today, I trade actively; everyday; and I probably think about trading every minute in one way or another.  I am not obsessed – I have just grown to really enjoy it.  I have found something that I’m passionate about and that I think I can do well (at times, perhaps).  I have learned more in the past five years than I could have ever imagined, and most of it has been through experience.  It’s been great, because it was only a couple of years ago when I didn’t even know what a hedge fund was, and now, I am thinking about how I am going to start my own fund one day.

Let me also say this … while I have grown a lot in recent years, I also realize that I still have tons to learn and much experience to gain.  I am not naive to think I am going to start a fund tomorrow, or next year or in five years (even though there are a number of people in their late 20’s that have started very successful hedge funds).  But, I am working towards something and I have a vision, even if it isn’t an actual plan.  Planning won’t make any difference, but vision makes all the difference in the world. 

So, today, I spend my time fulfilling my day-to-day job responsibilities while also working to grow a private investment arm of our company that focuses on venture investments.  Throughout all of it, I probably spend more time focusing on my trading and personal investing than anything.  My overall hope is to continue and grow my public securities trading, while also growing our investments that are “private equity” centered (not in the sense of LBO, Blackstone/KKR private equity, but managing private capital for venture staged investments in private companies).  Soon I hope to move to these roles 100% full-time, whereas, now I am spending about half of my time on this.  I will be there eventually, but hopefully soon, because my only real plan right now is to learn and gain experience.  Whether it is through formal education, training or first-hand experience, the  name of the game for me right now is learn, learn, learn!

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    Steve Cook…

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