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Investor's Journey: Overcoming Challenges as a Beginner Retail Investor

Iván N. Peña Tovar was featured in Investment Couch by yeekatee this week, discussing Ivan’s investment strategy, stock selection process, and tips for aspiring investors. He also discusses the challenges he has faced and offers advice on how to balance risk and reward in investment decisions.


Listen E1 Investment Counch with Iván N. Peña Tovar ▶


🔶 Can you tell us a bit about yourself and how you first became interested in investing?

To quickly summarize my background and how I ended up being a retail investor, it’s best to go back to 2010, when I finished my studies and first entered the professional market during the worst financial crisis known in history, especially in the country where I am from, Spain, where also the worst real-estate crisis was unleashed.

Due to the global environment and my family situation, I rushed to find a job as quickly as possible. Back then, Software Engineers in Spain were not so valued as they are today. In my first job, I was making barely EUR 1000 a month, living in an expensive city like Madrid and paying EUR 600 a month just for my apartment. Luckily, I have a natural skill (probably inherited from my father) to save money, so even when I just had EUR 400 left to survive in the capital city, I was even able to save some money at the end of each month, but that was clearly not enough to grow some wealth.

I worked my ass off (sorry for my French) for five years, I got the best reviews from every manager I worked with, and I am very grateful for everything I learned during that time. Still, at some point, you need to start prioritizing what you get in exchange for the value you are providing, and that was definitely uncompensated. That was the trigger that led me to update my LinkedIn profile and start searching for another job.

After some weeks and some interviews, I got a very good opportunity to move to Switzerland, where I live today. A good thing that I got from my previous employer was my official role that I keep nowadays, IT Consultant in Digital Banking. In 2015, banks started to recover from the financial crisis and began to invest more in digitalization, so suddenly, my role was considerably more valuable. I went from earning EUR 1000 per month to earning around CHF 8000 per month. That increase, combined with the knowledge I gathered working in the financial sector and with some influence from my two uncles, who are investors themselves, led me to start researching more about economics and investing, although it was not until 2019 that I started to invest officially.

🔶 Can you walk us through your investment strategy and how you go about selecting stocks for your portfolio?

Benjamin Graham described in his famous book The Intelligent Investor two types of investors: active investors and passive investors. To make it simple, there are two ways to invest, the hard way and the not so hard way. Passive investors choose the latter. There are different options to be a passive investor nowadays, like ETFs and index funds. All that, together with some investment strategy like DCA could give you quite some long-term return with not so much effort, although you would still need to struggle with the psychological factor of investing when it seems that the world is coming to an end.

On the other hand, there are active investors, those who pick their own stocks by analyzing the fundamentals of the companies behind them and calculating their so-called intrinsic value. The positive aspect of choosing this path is that your returns could be much higher than with passive investing, but so could also be your losses. Besides, struggling with the psychological factor of investing is also exponentially much worse because you need to trust yourself and not some professional fund manager or index with a known track record.

In 2019 I started as a passive investor while doing some courses about active investing. It was in 2020 (yes, during Covid) when I began picking my own stocks.

My recommendation for beginners is to start with Blue Chips, companies with large capitalization, a known stable track record, and easier to analyze. This will help you grow experience in fundamental analysis and gain some confidence. Once done that, you could start little by little, adding mid- and small caps or even micro-caps if you’re up to the challenge.

The best tool currently available for retail active investors is, in my opinion, TIKR. It has a free plan, but if you’re really into investing, I recommend paying for it.

🔶 What are some of the most unusual or unique investments in your portfolio, and what inspired you to invest in them?

Well, considering that my focus is mostly on mid- and small caps, I could say that all my positions are unusual and unique.

The motivation to go this route and not the easier one with Blue Chips was:

  1. Try to increase my return in the long-term. Multibaggers are easier to find when they are still small.

  2. Challenge myself as a human. We’re naturally emotional and biased beings, and those emotions and biases go quite against what a person needs to be a good investor.

🔶 Have you faced any challenges or setbacks with your portfolio, and if so, how did you overcome them?

Of course! Even Warren Buffet faces challenges and setbacks from time to time. In my case, China has been the biggest setback so far. I invested in two Chinese companies before all their macroeconomic turmoil, and my performance today is very bad, although I still believe in their future potential, but the investment rate in them has decreased considerably. My outcome of that experience is that I need to be careful with investing in countries where freedom, transparency, and legal protection is not guaranteed. I wouldn’t say don’t invest in China at all, it’s still the second biggest economy in the world, but I would be cautious and invest a small portion of your portfolio.

🔶 How do you balance risk and reward in your investment decisions, particularly with more unusual investments?

When doing fundamental analysis, you need to do some forecasting about how much revenue, earnings, and cash flow a certain company might get in the next 3 to 5 years. To do so, you need to define different scenarios, at least three: worst-case scenario, realistic scenario, and optimistic scenario. The idea is that you don't lose money in the worst-case scenario, and you can make a lot with the other two. Of course, this is all subjective to whether you are too pessimistic or too optimistic in your estimations. With experience and time, the risk of miscalculating is much lower. In the beginning, I’d recommend comparing your results with other analysts, although they also miss the numbers quite often. TIKR and other tools can help with all this.

🔶 Can you share any advice or insights for aspiring investors who are interested in building a portfolio?

If you’re willing to take the active path, I’d recommend educating yourself first and starting with small amounts of money and safer companies. Once you build up some experience and trust, you can start reducing the size of the companies you hold. You really don’t want to be a beginner and hold small caps in a bear market like nowadays, you will lose all confidence, motivation, and interest in investing, and that’s the worst thing that could happen to you. The alternative would be holding cash which is already depreciating now while we’re talking, and it will do further in the coming years.

If you think you’re not up to the challenge, just take the passive path or look for a professional solution like a wealth manager or a Robo-Advisor with low fees. Fees are the most important factor for passive investors if you want to increase your return as much as possible.

Anyway, not investing is not an option nowadays.

🔶 How do you stay up to date on market trends and potential investment opportunities in your field?

The challenge today is not finding sources to get this kind of information but filtering them to get quality data and avoid triggering some biases like the so-called FOMO. I personally use some platforms like Twitter to follow trusted and experienced investors, trusted YouTube channels (I am an elder Millennial), and investment communities (not WallStreetBets) to be informed and get ideas. In any case, be careful with exposing yourself too much to media channels, it might make you choose poorly if everyone out there is talking about the end of the world or the “next Amazon”.

Another tip is don’t focus on trends if you’re not an expert in macroeconomics or the matter in question. Normally, when you’re a retail investor and there is a new trend in the market, you’re probably already late to take the wave. That might not be obvious at the beginning when all your environment is making easy money and you don’t, but one of the hardest things in investing is knowing when to sell a position, even more than when to buy it. Once the wave passes, you will probably see yourself still holding that position with a negative return if you didn’t lose it all. Focus on your own analysis and strategy.

🔶 How do you approach diversification within your portfolio, and what role do more traditional investments play alongside your choices?

I recommend having some diversification at the beginning. If you’re a passive investor, normally, you will get it automatically with ETFs and index funds, but not when doing stock picking. It’s true that diversification might reduce risks in your portfolio, but it also reduces the possibility of getting a higher return, so this is (yet) another challenge in investing, where to find the balance. As a beginner, it’s better to have more diversification because you’re less experienced, but once you start gathering more experience, I’d recommend reducing it. To start with, I’d say around 20 different positions from different (stable) countries, currencies, and sectors. Don’t be naïve, keeping track of 20 positions is very hard work, but it will help you to grow experience analyzing them. I did hold up to 30 different positions, and it was a nightmare, especially if you have a full-time job besides. Now I am aiming for 12-15 positions.

🔶 Looking ahead, what are some of the key trends or industries you're watching closely for potential investment opportunities?

As an investor, I like to look more backward than forward to make my decisions. I’d rather have in my portfolio a company with a good track record, low leverage ratio, and competent management than the “next Amazon”. The probability of success having the first one is much higher than the latter because, let’s be honest, how many Amazons do you know?


Iván N. Peña Tovar is a Principal Engineer at yeekatee, a seasoned software engineer with over a decade of experience in the field as a developer, project lead, and consultant. Throughout his career, Iván has been passionate about developing efficient, scalable, and secure software solutions for complex problems.

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