Investment Lessons From The Most Profitable Trades

I truly believe there are fortunes to be made every single day if we look hard enough. The problem is, we all get busy with our lives and don't really bother. But I know you're curious about how to become a better investor because you found this post. Let's look at some insightful investment lessons from the most profitable trades. I strongly believe the more knowledge one has, the more wealth one can create.

Part of the reason why investors hand their money over to professional money managers is so that they at least know someone is spending their working hours trying to make them money, even if it is for a fee. 

The busier I get, the more amenable I am to farming out more money to people who pick stocks for a living. That said, I'll never stop chasing unicorns. Now let's take a look at some investment lessons from the most profitable trades.

Some Of The Most Profitable Investments

The following is a historical infographic by Motif investing that shows how one could profit from world events. I used to have a trading portfolio with Motif and also consulted for them. Motif was acquired by Charles Schwab in 2020.

2014 Best Investment Ideas From Motif

Investment Lessons Takeaways

Here's a highlight of four main investment lessons you should takeaway and utilize in your journey to greater wealth.

1) Everything is Yin Yang.

When you see oil prices going into the dumps, you should immediately think about industries where oil is a high input cost. There are almost always winners during major corrections of particular assets. Other input cost examples include wood, steel, and semiconductors for the housing, auto, and electronics industries. A scarier example is what happens to the markets during a major terrorist attack. Stocks collapse, and money finds its way into the safety of bonds. Interest rates decline and interest sensitive sectors eventually benefit.

2) Not everything is just good or evil. 

Obamacare is a highly contentious political issue. If you are against forced health care and subsidizing health care costs for others with rising premiums of your own, you're angry. But wouldn't it have been nice to take your emotion out of investing and recognize that Obamacare is here to stay and to invest in a basket of stocks that would profit from Obamacare? The same goes if you were a renter who was frustrated by aggressive rent increases. Why not invest in a motif that will take advantage of rising rents?

3) Profiting from ideas has never been easier.

If you like to pick stocks or actively manage your portfolio like I do, for 10%-20% of my investments, it's never been easier to put your ideas into action. You don't have to painstakingly research stocks one by one. Obvious ideas for 2015 include: Obamacare, Geopolitical Tension, Wearable Devices, Vacation Properties, Luxury Goods, A Rebound In Commodities, Sharing Economy (Uber, AirBnb, DropBox, Thumbtack, etc) and more.

4) There's no need to invest in what you don't comfortably understand.

The best performing stock market in the world is the India Nifty Index, up around 35% YTD vs. +12.5% for the S&P 500. I used to follow all Asian markets very closely in my previous job, so I'm kicking myself for not having some exposure to India. However, investing in a phablet motif that is up 40% YTD is a much more palatable investment because I can more easily understand the companies in the motif e.g. Apple. If I were to put my money in India, I've got to feel comfortable with the political winds that are always changing. It's always better investing in what you know.

Spend Some Time Thinking About Your Investments

The reason why I spend so much time during slow periods thinking about my finances is because once the busyness begins again, I'll have already come up with a game plan to deploy capital in the most profitable way possible. I want to have a diversified portfolio of index funds, ETFs, and alternative investments based on how I see the world playing out over the next 12-24 months. I'll rebalance at least twice a year as always.

When I'm traveling abroad for weeks at a time or busy researching for my latest post during the day, the last thing I want to do is think about my investments. Actively trying to time the market is seriously a big waste of time. My goal is to come up with an investment allocation where I can feel comfortable forgetting about my positions for at least six months, no matter what happens in the world.

Invest in ideas for the long run, and only change those ideas if something structural has shifted. Buying a basket of stocks removes endogenous risk (like having a shady CEO, client concentration risk, lawsuit, etc). Riding long term themes over multiple years is what makes people rich.

Invest In Private Growth Companies

Consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

Check out the Innovation Fund, which invests in the following five sectors:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

17 thoughts on “Investment Lessons From The Most Profitable Trades”

  1. The majority of my investment portfolio for my retirement savings account is in stocks (I plan on retiring in 30 years) but I do have some cash. I am looking to add more ETFs (probably bond ETFs and international equity ETFs) and index funds in it, but I don’t have a lot of knowledge in that, so I’ll have to do quite a bit of research on it.

    While I have blindly bought stocks based on a hot tip from a relative, (thankfully, they were winners.), I would never buy something I knew very little about anymore or didn’t feel comfortable buying.

  2. It’s pretty cool how Motif has so many ways to invest. That renter nation motif made me chuckle because I’ve seen how much rents have risen in SF. I like that you can invest in these ideas without being exposed to just one stock.

  3. Hi

    Need an advice… Which bank would you recommend and which type of investment (saving account, money market, etc) would you recommend for Euro currency? I live in US, but have some Euros that I brought from overseas… Not sure if I’ve made a mistake by bringing them to US as I had an option to invest them abroad (in one of Balkan countries- I was born there..) at 5% interest rate for a regular savings account, but I was hesitant to do so, as I wasn’t sure how safe those deposits would be…


  4. I don’t really tend to try and follow the broader trends – I just feel like as soon as something happens, like an oil price shock, it’s too late to really take advantage of. And it’s hard to know if these shocks will revert quickly, or stay at a new level for a long period.

    I prefer to take a ‘bottom up’ approach and focus on trying to find good quality, good value businesses, or businesses that really seem to be trading at low valuations relative to their prospects. But one area I have bought a few stocks in is commodities and mining services, which have really been pummelled in the last year or two. I don’t know if things will turn around strongly in 2015, but many businesses are trading at at values suggesting they won’t survive another year or two. I’m happy to make a bet that some will survive and regain their profitability, and hopefully a big boost in share prices to follow.

  5. Very good read and I am definitely checking motifs out. I have a lot of capital just sitting in cash at the bank and I think it’s time to start investing it. Motifs and Vanguard seem like great places to start. I’ve vested my 401k fully for 6 years and have a fully vested ira for about 3 years. Where would you think good place for 120k would be and what type of split between Motifs and Vanguard type accounts. In my early 30s if that helps.

  6. If you want to make money, try taking advantage of what people are addicted too. This year I’m invested in oil companies, an under valued tobacco company, and a certain pay-day loan company. Hopefully within 24 months I’ll be very pleased.

  7. Hi Sam,

    For someone who is just starting to invest, where would you recommend allocating most of their funds? Most of my investments are in lending club and thats about it.

  8. Gen Y Finance Guy

    Do you ever sell puts in names that you want to get long? With markets at all time highs, there have been a few really nice spikes in volatility that made for good opportunities to sell puts with rich premium. Or what about covered calls?

    I know interest rates are low and so people continue to pour money into stocks, but I personally have a hard time buying at all time highs. So on dips with decent spikes in volatility like we had in October and mid-December provided great opportunities to sell puts pretty far out of the money in the SPY ETF.

    Of course I was selling puts at prices I would not mind getting long from if the market did indeed keep pulling back. It could be a part of a much larger dollar cost averaging strategy.

    I really enjoy the content you put out. Looking forward to following the blog and getting inspiration for my own blog posts.


    1. My only experience with derivatives was back in 2000 where I bought WorldCom options with a strike price of $150. I asked my Managing Director at the time for permission first, and she said “if that’s what you want to do.” Of course, WorldCom blew up, and the dotcom bubble burst, and I decided to not mess around with derivatives for straight profit again. Selling puts or covered calls is something interesting to consider in volatility and all time highs, but I haven’t bothered.

      But, I have used derivatives as a hedge by investing in structured notes. Here is an example I wrote about to explain:

      Over the past two years I’ve built up a sizaable structured note portfolio as the markets rise up. I’m always fearful of top ticking the market, so I buy notes that have upside participation, but perhaps not 100%, but provide 10-40% downside buffers just in case.

      1. Gen Y Finance Guy

        That’s interesting. I would had thought coming from a place like Goldman Sachs that you would be all over derivatives. But that goes to show you why you shouldn’t make assumptions.

        I tend to believe that buying options is a suckers bet as something like 75-80% of options expire worthless (my opinion, people make money doing it). The problem with buying options is like buying stocks you only have one way to win (assuming no dividend of course). If you buy a call then you have to not only be right on direction (that its going up in price), but you also have to be right on timing. Additionally, the premium you pay decays each day the stock doesn’t do what you thought it would.

        On the other hand when you sell options you are giving yourself more than one way to win, and thus increasing your probability of profit. As an example, lets say you sell the SPY April $190 Put. It currently has a mid-price of $2.45 as I write. First your effective price if the option is exercised is $187.55 or about 10% lower then where we are currently trading (208.81). If the price continues higher you keep the entire premium, if the price stays the same you keep the entire premium, if the price drops almost $19/share you keep the entire premium, and if the price is anywhere above 187.55 by expiration you make money.

        Now of course there is the possibility that the market drops more than 10% and you take delivery of the shares. But I would much rather own the SPY at 187.55 then at 208.81.

        Most people have bought into the idea that options are riskier than stocks, but risk is only a function of education. As you can easily see, you would have way less risk selling a put at the $190 strike then you would buying it at $208.81.

        I personally think that every self-directed investor or financially savvy individual should at least consider selling puts or calls against stock they own.

        However, I do find the structured note approach interesting as well. Your effectively accomplishing some of the same characteristics of selling puts or calls.

        Where do you recommend getting more information on structured notes?


        1. There are A LOT of different departments at any investment bank just like there are a lot of different departments at P&G. I wonder if other people think I’m well versed in derivative trading given you do.

          If it helps, I didn’t Options As A Strategic Investment by McMillan, a 1,000 page book and did interview with the derivatives desk!

          You sound like a pretty experienced investor. As such, you can open up a private client /wealth management account ay a number of large banks. Citibank has a minimum of $100,000, for example.

          1. Gen Y Finance Guy

            Do you have any other finance blogs that you follow and would recommend? I am always interested in reading other perspectives from smart people.

        2. You really want to be long gamma….. Not short gamma. When things go wrong…. And eventually they do; they go wrong very, very badly!

          1. Gen Y Finance Guy

            The great thing about trading/investing is there are more than one way to make money. :)

            1. It’s really a matter of risk management. Everybody is smart!….. Until…. They’re not!

              All it takes is one blowup and the trading career is over.

              Anyway…. Good luck to you!

          2. Gen Y Finance Guy

            Like you said its a function of risk management and education. Anyone can blow up their account if they take out sized risk relative to their account. I have had friends who fell in love with portfolio margin and started to taken on crazy risk and blow up their accounts, needless to say they don’t trade today.

            I should clarify if I hadn’t already that I am selling puts in equity’s that I would not mind owning at lower prices and they are cash secured. And this is mostly in indexes with the theoretical risk is that it could go to zero, but it highly unlikely that the SPY index that tracks the S&P 500 is going to go to zero. If it did, the world would likely be coming to an end and I would have much bigger problems.

            I totally understand what you are saying with gamma risk. I used to run a risk book for an oil company a few years back and being that I have always been a premium seller, when tensions in the middle east broke out, premiums exploded leaving positions with huge mark to market losses. However, the intrinsic value at expiration was nowhere near the mark to market, and as long as you don’t over leverage yourself those kinds of moves don’t matter.

            In my opinion you mange risk at order entry and as a premium seller, I absolutely am aware that volatility could explode, which is typically why I don’t put nearly as many positions on in a low vol market. But when we get spike in volatility in the VIX for example from 14 to 30, it makes for good opportunity to sell some premium.

            I think most people get in trouble when they sell options in a low vol market and they trade way to big for their account.

            Lets face it, 80% of options expire worthless.


Leave a Comment

Your email address will not be published. Required fields are marked *