Stock Market

My Emotional Roller Coaster Investing in US Stocks as an International Student

I started buying stocks shortly after graduating high school in Africa. Back then, as an impressionable young man, I was influenced by the successes of Warren Buffett and Charlie Munger, and gobbled any article I could find about them, just to get the wisdom of successfully investing on the stock market. When I moved to the USA for my MBA studies, I was delighted to know that one of the things my F1 visa would allow me to do is buying and holding US stocks. As soon as I had my social security number, I opened an investment account at one of the many online financial brokerages, and started buying stocks.

Save for the Johannesburg Stock Exchange (JSE), Cairo Stock Exchange, and Nigerian Stock Exchange, many African countries only have a handful (below 100) of listed stocks, so it is possible to look at them individually and decide ones where one may find value.  That is not the case with the US Stock Exchanges. NASDAQ has over 3.5K listed companies while the NYSE has over 2K listed companies. So, to have any chance of identifying potentially undervalued stocks at all, I had to specialize by sector.

In the future, I will share how dismally and sometimes, wonderfully well I did. Keep in mind as you read that this is not investment advice, but just a man trying to share and humorize his experiences in picking stocks for long-term investments so that others may be encouraged when returns turn south, and cautiously optimistic they head north.

‍Niche It, Know Your Risk Appetite, and Other Well-Meaning but Sometimes Useless Advice

One of my best (perhaps stupid) ideas was to try and understand biotech / biopharma stocks. Investing lexicon is easy to understand, and when you read about companies in drug development, you quickly pick up on the jargon and what it means. Drug / Developmental Pipeline. Drug Efficacy. Primary Candidate Drug. Investigational New Drug (IND). These are concepts I grasped quickly. It didn’t take me long to (for better, for worse) overestimate my competency investing in biopharma stocks, and I am glad I did. My strategy was to get in after a promising drug got knocked back by the FDA on technicalities that were not insurmountable to overcome. As other investors took flight, I would get in, let the company comply with issues raised by the FDA, and wait out the next FDA evaluation and decision. My risk appetite is very high (if you have no wealth to protect, why be timid?). Just because a drug has been knocked back by a technicality does not been it will eventually get approved, so startup drug developers with no approved drug on the market are only one FDA denial away from filing for bankruptcy, another dilutive fundraising, or dilutive merger. All these potential eventualities did not deter me.

Many listed startup biopharma companies found their way to the stock exchange by reverse-listing through special purpose acquisition companies (SPACs). It is very rare to find a disease area where there are no incumbent drugs, so, a drug approval does not necessarily mean boon times ahead for a drug company. In fact, it is sometimes common for a startup biopharma company’s stock price to retreat (fall) after an FDA approval, as investors realize the financial resources, manufacturing requirements, and distribution partnerships required for the newly approved drug to make a significant dent in the market.

Curb Your Enthusiasm…If You Can Find a Measuring Unit For It

My favorite biopharma stocks are penny stocks. No, not penny like $2-$5 ones. Downright change-on-a-dollar penny stocks. It is not unheard of for many, a startup biopharma company’s stock to tank below $1 after an FDA setback. One of my foolish stock market plays was buying a few thousand stocks for $0.25 apiece after one such FDA setback and selling at $1.33 after price recovery (that’s slightly 5x).  For the record, I was aiming for a 10x price jump, so I was disappointed. One of the most underestimated skills in stock investing is knowing when to sell. In that instance, I did not sell on a high. There is a thing about the emotional turmoil involved in making simple decisions on when to sell. When this particular biopharma stock reached $2, the optimistic (perhaps greedy) me waited for more uptick. I estimated that the stock could hit $5 – never mind the fact that my small investments in it would still not be enough to pay for my student loans. So, as I waited for the stock price to reach $5 after hitting $2, it fell to $1.33, and I beat a hasty retreat and sold. Yes, you have guessed right if you think the price went back up after I sold. We are all very wise and long-term value investors on paper, till we start investing our own money. Then 1 month starts feeling like an eternity.

To increase my chances of success, I do research on a few stocks. Say five (5) and then add them to my watch list. Not all of the 5 stocks will have equal desirability to me, but when I see a steep price decline to my desired price, I investigate the cause of the decline and if is anything that I believe the company can overcome, I buy. I tend to excel at this. The problem starts when it’s time to sell. I am still learning to manage the upside and know when to get out. I have been in the USA for 3 years, have held an investment account for about 1.5 years, and read a lot of information on investing, but I am still learning to manage my emotions better.

I am also trying to learn to manage my ‘long term’ by asking myself what I would invest in if I were relocating to planet Mars for the next 5 years and needed to put my savings in a single stock? Which company would I trust to do well and have a good return in the next 1 year? 2 years? What could change to make that competitive advantage be wiped out in year 3? Which companies are likely to retain their competitive advantage (moat) over the next 5 years? Just answering this question alone is very hard enough before putting my $1 at risk. Once I have $100 staked, it gets harder, and the previously clear waters get much murkier. Fundamental analysis, technical analysis…or whatever people do to get their intelligent estimations within acceptable levels of uncertainty…that has not been the most important or hardest skill for me. For me, managing my emotions to make rational sell or hold decisions has been the most illusive skill.

About the Author:
Tav came to the US as an international grad student, and is now a Boston-area entrepreneur, investor, and optimist.