5 financial tips from an actual financial analyst

I spent more than a decade as a financial analyst. It has shaped who I am — far beyond spreadsheets. Everything I see has a giant risk-reward ratio hovering over it:

• Going to the gym.

• Choosing to dig my heels in on an argument.

• Seeing a movie with a 70% Rotten Tomato rating.

Every decision feels like a calculation, a balancing act between potential gains and losses. Yes, I wish I could turn it off, as it feels robotic. But this psychology is imbued into my brain at this point.

There’s tons of bad investing advice out in the world. Social media is particularly insidious, written by people with no experience. And, sadly, people gobble it up. Their vulnerability stems from “scared money”. It’s a phrase we applied to clients who wanted massive returns, but who were petrified of taking on any risk. One client demanded a 25% annual return but wanted near zero volatility (also called low “risk beta”) and no chance of bankruptcy.

On social media, influencers make these investments seem real and only a click away.

I love investing. It’s the ultimate gut check. Here are some of my philosophies to help you invest, based on my experience and education in finance.

My golden rule of investing

There’s a persisting lack of financial literacy throughout the US (one study shows that roughly half of Americans are financially literate). I shouldn’t be terribly surprised to see people buying stocks with money they could have used against their crippling credit card debt.

Three years ago, I noticed an egregious penny-stock charlatan on Twitter. She claimed she’d made millions off the stock ENZC. She was encouraging people to buy it, gaining thousands of Twitter followers per day, as she showed off her “millions” she’d made.

Candidly, I was ticked off. The people buying this stock didn’t understand what they are getting. You can see the pump and dump on the stock below. Notice the red circle I've made below:

That’s the price-earnings ratio, which is one of the most important metrics in all of finance. It shows how much you pay per dollar of earnings. Generally, you compare it to industry averages. It’s generally much higher in growth oriented industries, like tech.

Notice how there's nothing there for ENZC? That’s because the company doesn’t make any money. It’s always been that. Zero. Yet look how that stock spiked in 2021. All those people fell for her campaign and she probably got out near that peak and walked off with the bag.

Buying a stock means becoming a business partner. It’s more fun when you invest in a business you can reasonably understand, support, and root for. It’s not buying a small number and hoping it becomes a big number.

I’ll give you a very specific example of how I chose a winner. Twelve years ago, I went through a divorce and found myself single — in a radically different dating market. The proverbial wingman was dead. The days of drowning in liquid courage to approach a woman were dying off as well.

At the behest of a friend, and with great skepticism, I tried online dating. I was blown away. It was so easy to schedule dates. I met my current partner of seven years on Tinder.

One year later after becoming single, The Match Group, which owns Tinder, OkCupid, Hinge, Match, and Plenty of Fish, initiated its IPO (“going public”). I was ready to commit. I had a fundamental belief that online dating was the future. I’d used the product and loved it and knew there was very little competition.

Since buying, I’ve seen more than a 10x increase in the valuation of the company. My only regret was not buying more.

In graduate school, my finance professors stressed the importance of why. You should have some type of reason and logic behind your purchase, other than “It’s cool and everyone says it’s great.”

Ironically, I don’t overthink financial analytics too much. You’ll never out-analyze big players like hedge funds. But you should never fall for stock hype. By the time your Uber driver is telling you to buy it, it’s already too late.

Here are some gut-check questions:

• Am I following the herd right now?

• Is there competition or regulations that could hurt this company in the future?

• Are they “on to something” that others aren’t?

Watch for simple logical pot holes. For example, a cheap stock doesn’t equal a good deal. It’s often the opposite if the stock is less than a dollar (also called “penny stocks” which tend to be rife with scams and tend to result in lower returns). Many platforms won't even host stocks that sell for less than a dollar.

Conversely, just because a stock is expensive doesn’t mean it’s a bad investment. Twelve years ago, everyone was saying that $600 was too much to pay for a single share of Amazon. And then then the price went up to $2,000. The stock split 20:1 in 2022 (meaning, each share was split into 20 shares). Companies do this to make the price tag more appealing to investors. Multiply these below numbers by 20 and you'll get a good idea of how much growth Amazon has had.

Hopefully you now see that $600 doesn't sound so bad.

The big idea to remember: Don’t invest in products you don’t understand. You’ll end up scratching your head, wondering why your money is going up or down.

The best purchases are gut-wrenching

Buying opportunities often accompany bad news.

Some of the best opportunities in this nation’s history were in 2008. There were huge transfers of wealth, just as there were during 2020. It’s worth reading up on stocks, but remember that good stock reviews can also drive up the price. Buying when the company is making headlines can trick you into overpaying — but not always.

I bought into airline stocks during the pandemic, when all the outlets were saying airlines were going to go under. I suspected a big brand like United Airlines wasn’t going to go out of business in the long run and that they’d have some level of protection from the government. I also liked their CEO, who seemed dialed in and aggressive in running his operation, and who is now on track for record earnings.

But buying was hard. It was during the peak of the pandemic, and I felt sick to my stomach as I pushed buy. Thankfully, it paid off. But I did take on risk. The chance of bankruptcy wasn’t zero by any means.

And that’s what you do. You decide how much risk you can tolerate, psychologically, emotionally, and then financially.

Watching your numbers can cause more damage

My grandfather was a great investor. During the week, he sat in the living room’s lazy boy chair, watching the investing channel stock ticker. For hours and hours, he watched as the tape went round and round.

I was young and often groaned, “Grandpa, can we please watch something else?” He had a very intense relationship with money. He’d grown up in the throes of the Great Depression. Like many men of his era, he was frugal and always thought we were one step away from financial ruin. But he rarely bought or sold — which is how you should approach investing.

In graduate school, one of the most powerful lessons I learned sounds extremely simplistic but it still rings in my mind over and over. Our professor echoed the known data and said, “Those who buy and sell frequently perform worse than those who hold.”

That is repeatedly proven metadata and applies to the vast majority of investors. Remember that phrase like it’s gospel. Pick stocks you like. Buy them. Then close the books and walk away.

Don’t check your portfolio constantly. It can drive up your stress and you’ll be more prone to panic selling.

Big boring investments that win

I’m a huge fan of index funds.

People with zero investing experience, who buy index funds, tend to outperform investors who buy individual stocks. One of my favorites is the S&P 500. You’ll be investing in 500 companies all at once and it has a 10.5% average annual return over 10 years. I repeat, 10.5%.

I currently have 40% of my retirement savings in this fund. It’s not exciting. But it’s safe, and I know that over time — I’m going to win.

It won’t go bankrupt. You’ll never lose all of your money. And it will properly insulate you from inflation cycles. The S&P500 Index is the bar by which many hedge funds measure their performance (they often struggle to outperform this index too).

Parting thoughts

Continually invest in stable stocks — but also wait for bad news. Downturns are ripe with buying opportunities.

You are going to be wrong sometimes. That’s ok. Don’t abandon all hope or write yourself off as a bad investor. Make sure to diversify into several sectors (but beware of over diversifying and hedging away potential profits) Stay away from tiny companies, startups, and penny stocks. Go for index funds and you generally will thrive.

Invest in companies you understand and believe in. Be patient. Above all — save for your future. Money is about security and freedom. It’s not about buying silly toys and adopting expensive hobbies. Saving for your retirement is correlated to many great outcomes in life satisfaction.

And whatever you do, don’t get your investment advice from Twitter users who don’t even use their real names.