First off, Merry Christmas to all of my readers and I hope you are having a safe and enjoyable holiday period in these unprecedented times. This has been a Christmas like no other. In this weeks festive edition, I am going to answer some of the questions that I have received from subscribers over the past couple of weeks. If you do not see your question below, fear not. Your question was so good that I have decided to do a full post on the topic!
Q1. I recently received extra shares for a company that I already own, why is this?
What I suspect you are referring to is a stock split. A stock split is when a company divides the existing shares into multiple new shares. As an example, in a 2-for-1 stock split, an additional share is given for each share held. If a company had 10 million shares outstanding before the split, it will have 20 million shares outstanding after a 2-for-1 split. If each share was trading at €100 a share before the split a 2-for-1 split would halve the price of each share to €50. Although the number of shares outstanding increases and the price of each share changes, the company's market capitalisation remains unchanged.
Generally companies decide to do a stock split so that they can lower the trading price of their stock and increase the liquidity of the shares. In most cases a stock split is executed after a high run up on the share price as was seen by Apple $APPL and Tesla $TSLA earlier this year.
Q2. In the current climate how do you avoid being drawn into short term trades or do you do a little speculative trading if the opportunity presents itself?
This is a great question. First off, I don’t engage in any short term trading. I have nothing against short term trading. Many people end up making a lot of money from it. However, this does not fit in with my own investing goals and strategy at the moment. Additionally, if I were to engage in short term trading I feel that I would need to monitor stock prices and news in real time requiring significantly more of my time. I have a full time day job so this would not be feasible for me.
All of my investing activity is with a long-term mindset. When I invest in a company I am not worried about the price falling immediately after I buy it. I focus on the company as a whole, how it is performing from a financial perspective and ultimately the long term outlook. There will always be an over hyped stock that has run up a lot and you might feel that you should have invested. By referring to my investing strategy I avoid being drawn into activity that is not consistent with my long term goals. I would encourage every investor to establish their own investing strategy and goals. I covered how to do this topic in a previous newsletter than can be found here.
Q3. Do you consider the FX (foreign exchange) rate when you are investing?
The short answer here is no I do not. For some background context here, I am based in Ireland so my functional currency is the Euro but currently all of the stocks I invest in are in USD. As the exchange rates fluctuate this exposes me to an added risk if the USD rises against the Euro. I invest monthly using a dollar cost average approach. By doing this, I am essentially smoothing out the impact of the FX over the duration of my investing lifetime. For example, one month I might have invested when the FX rate was 1.10 and another month I might be investing at 1.20. The current share prices are a far more important consideration than the FX rate when I am investing each month.
Q4. What company has given you the most returns to date?
At the time of writing this would be Nio ($NIO) and by some distance. Overall, my total returns on Nio are 287%. I made this investment in two tranches so I am up 410% on my initial investment earlier this year.
Q5. What is the guarantee in place with DEGIRO under the banking sector scheme?
Every time we make an investment there is some level of risk involved. One element of the risk is the company we are investing in. The second element of the risk is the broker or provider we are using to make the investment. In the event of the broker going bust there are some guarantees in place covered by governments or semi state bodies. In the case of DEGIRO (which I use myself) the common belief is that there is a €100,000 guarantee in place. However, this is not the case and it is actually €20,000 as per the company website extract below.
Just like investing in multiple companies to diversify the concentration risk, I would advise considering to diversify your investments over more than one broker as your portfolio grows considerably above the applicable guarantee scheme. The guarantee scheme will vary from county to country and often broker to broker depending on where it is headquartered. This is not something to be afraid of however every investor should be aware of all potential risks when making an investment.
Thank you to everyone who submitted a question and reached out to me. I hope the answers I have provided will be of some benefit to you. Furthermore, the questions received have given me some food for thought in terms of future newsletter topics. My inbox and DMs on Twitter are always open so don’t hesitate to contact me.
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Wolf of Harcourt Street
Disclaimer: I am not a financial adviser and I am not here to give specific financial advice. The opinions expressed are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. The information is based on personal opinion and experience, it should not be considered professional financial investment advice. There is no substitute for doing your own due diligence and building your own conviction when it comes to investing.