Trying to engineer a profitable stock portfolio - MoneySense

Engineering a profitable portfolio

This young investor’s strategy is not for the faint of heart

Somayaji Ayalasomayajula, 22 Mechanical Engineer, Toronto

Somayaji Ayalasomayajula, 22, Mechanical Engineer, Toronto

I’ve been interested in growing my money since I was 12. At a pretty young age my dad gave me some money and helped me buy a GIC (guaranteed income certificate) with it. I think the aim was to help me see how money grows through interest and compounding. After that, my dad and I got a bank statement every three months that showed I made about $20 in interest on that GIC. I thought that was just the greatest thing.

I’ve always loved the Internet and computers and am a big self-learner. At age 18, I opened a self-directed account with one of the Big Five banks and bought a mutual fund. I really didn’t like the interface that the site offered for trading stocks, which is what I eventually wanted to do, so I started reading up on different self-directed accounts with other financial institutions. I finally found an interface I liked through Questrade. The more up-to-date interface meant I could generally trade fairly quickly, which was what I wanted at the time.

I started learning on the go by reading newspaper stories on stock trading, but mainly learning through trial and error. Some would say day trading like this is crazy but for me, it was a very good lesson in market gains and losses as well as the workings of the market. I bought a few very small growth companies, mainly mining stocks, which were quite volatile. I traded those stocks like a day trader and in my first two days lost about $2,500 out of my $15,000 portfolio. That hurt. And making it back was hard. I had to trade almost daily for a whole month to make back that money. But I took that risk and learned something so I feel it was worthwhile.

The best thing about that phase of my trading life was that it taught me how to read financial documents. Because I stretched myself to learn those things during my day trading phase I can now read and understand earnings reports and am able to make more educated decisions about the fundamentals of a company. I learned about technical investing and about the “five candlesticks”, which are basically different chart patterns for stocks that help predict the direction of a price for a stock. I used these charts to help decide on short-term trading strategies. Did it work? Sometimes, but mainly it helped me understand the mentality of stock investor and the different strategies available if you want to experiment with trading.

What did I learn? That day trading is not for the faint of heart. I had to decide whether I wanted to invest for 10 minutes, 20 minutes—or for longer periods of time. Soon after that one-month day-trading experiment I put some of my money in exchange traded funds (ETFs) to make growing my money less risky—and less time consuming. I also kept working and adding to my savings.

Today, I have $25,000 in investments, working full-time as a mechanical engineer and adopting a buy-and-hold strategy. I hold just six stocks—Facebook, Google, Disney, Advanced Micro Devices (a semiconductor company), Activision Publishing (a video game publisher) and Nvidia Corp. (a tech company). I maxed out my TFSA and have started an RRSP and save $2,000 every month from my paycheque. One day, I’d like to put a down payment on a house, but I also want to keep stock picking and maybe even try options trading soon. I’d like to have the best of both worlds.

The truth is I love math and building algorithms and a part of me believes that if I apply enough math and knowledge to an investing system, I have a good chance of making a profit. I’m still young and want to experiment with investing somewhat. But in five years I see myself moving from stocks to ETFs. Everything I read these days seems to show that stock pickers don’t beat the market. But I love the workout that thinking about stocks, companies and investing gives my brain.

As I continue saving, I’m also trying new things—that’s what keeps me going. I’m trying to build an e-commerce shop to learn more about online marketing. I also enjoy rock climbing, snowboarding and reading non-fiction books. All of this is to say that I want to keep life interesting. I’m young and can afford to make a few investing mistakes to gain greater understanding. But I want to enjoy my youth as well. Balance is really what’s key for me—that, and to never stop reaching out to learn something new. It really is the secret to an interesting life.

As told to Julie Cazzin

First published April 9, 2017

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