As stocks began to soar throughout 2019, a record-breaking year for the market, I saw many of my friends and family flock to the stock market to make some extra money. Stock exchange and forex trading became common terms in households. Friends, family, and even the postman were lapping up the chance to get rich quickly amidst the volatile economic conditions.
The Plus 500 shares were recommended by the Start Investing UK for their July stock pick in 2019. When I get a stock recommendation I’ll do my own homework before making a decision on whether to invest or not. The truth is, when you look at stocks and shares as a whole, it’s very difficult to know where to put your money. With the plethora of financial instruments available to trade from, it’s always remained a mystery to me how one picks what to trade, let alone when to trade. Although there are thousands of blogs out there that that will claim to have the latest tips on how you can beat the market, there was something about this blog that just resonated with me.
So stocks reached an all-time high and more people got involved with trying to make a quick buck. And as always, retail traders always flock to the ‘easiest’ method of getting involved with their new shiny project, in this case through a native mobile app.
The stock was picked by the blog above because it had a strong margin of safety and it was believed that the strict regulations placed on trading – that had previously brought the price crashing down – couldn’t possibly be tightened even further. I did some further digging around and the stock looked to be in a solid position and their growing memberships enticed me even further. A competitor, IG Group Holdings were nowhere close in terms of the user-friendliness of the no-frills plus500 app.
I made the decision to invest in these shares. The Plus 500 share price at the time was 624p. I purchased 128 shares on 9 July 2019 for a total of £799.23. See the snippet from my investment broker statements below:
My aim, when buying any share, is to keep the holding forever. I learned this from some of the world’s best investors such as Warren Buffet and Terry Smith. But as the Covid-19 situation hit its peak, I could see the S&P 500 index falling dramatically and as I was low on funds I thought that this money would be better used elsewhere. Furthermore, as the share price had doubled I have this mindset that at some point the bubble might pop, and all the losing retail traders who tried their luck and trading would drop out of the app, causing the share price to fall.
I sold the 128 shares on 15 May 2020 for a total of £1,636.46, at a price of 1,278p per share. The screenshot below shows the transaction:
Selling shares of stock for more than you originally paid is called making a Capital Gain. This is taxable by UK tax laws. Fortunately, a stocks and share ISA (Individual Savings Account) tax wrapper prevents capital gains and income tax arising from the dividends and/or appreciation of shares.
The Disposition effect
The disposition effect is a discovery in behavioral finance, which describes the action as an anomaly. It is where an investor will sell assets that have increased in value but keep the assets that have dropped in value. In hindsight I should’ve kept hold of the shares as the price has now doubled again, it’s at the highest value since 2019. I could’ve potentially made 200%+ on this investment. But there’s no point looking back now, I did well enough and now it’s time to look forward to more opportunities.