I bought a share of TSLA
Getting my feet wet into the financial markets.
This is a short story about a small dream of mine. For the last couple of years, I wanted to invest in the stock market. It was always this sexy idea that people throw around at parties, but which always felt awkward to me. First, I did not really understand the stock market. I figured out that the strategy was buying a stock when it’s cheap and selling it when it appreciates in value, but this felt like gambling. The second issue was that I did not understand how to buy stock. Who keeps track of my shares? Where do they sit? How can I get my money back. In this article I will touch a bit on these two points, talk about my past months of financial education and the “journey” that is buying the first share of TSLA.
Part one: The Theory
Seven months ago, barely knowing anything about finance, I started my education. For me, that meant reading books, blogs and news. The books were really good, comprehensive and logically ordered. Blog articles were somewhat less cohesive, but offered a more subjective insight into different areas. News articles were useless, but they gave me an idea about how the average investor thinks.
I won’t try to explain any theoretical concepts here, as it would take me few more articles. For the curious, here are three books that I really recommend. Any of them would help one get started, as I think they address the same subject from three different angles, depending on your personal preference.
- The Complete Guide to Capital Markets for Quantitative Professionals — Alex Kuznetsov. Heavy read, really gets into the mathematical details behind financial instruments. It is very similar in style to the books recommended by a university curriculum. This one is for those people who, like me, want to understand everything that is going on under the hood.
- A Random Walk down Wall Street — Burton G. Malkiel. Light read but quite lengthy as it touches on the history of the financial markets. It explains quite well the economic cycles and the (many) financial crises. It also offers extended practical advice, but does not steer you in a particular direction. I recommend it for those who want to understand the concept behind Index Funds, while being aware of everything that is available.
- The Simple Path to Wealth — J L Collins. Short, light read, really well written and mainly discussing Index Funds. I recommend it for those who don’t want to feel overwhelmed with information, but who want some straightforward this-is-how-you-do-it advice.
Now, I believe one can spend few years just reading about finance, however there is a fine line between theory and action. One cannot do much without learning the theory first, but we can’t spend our entire life in school, at some point we get diminishing returns. So let’s go ahead and put that into practice.
Part two: The Practice
To keep this article focused, I will talk about one specific recent deal and how I went about it: buying a share of TSLA. TSLA is the ticker symbol for the company called Tesla, that produces electric cars: in particular the Model S, Model X and Roadster. In the second part of 2017, they will plan to release the Model 3.
I set my eyes on it around December 12 2016 when a Hacker News comment mentioned an interesting idea with regards to controversial companies. I’ll make a quick detour to explain that. In the stock market it is possible to make money when the stock price goes down. You do that by borrowing shares and selling them (called short sale). Once the market goes down, you buy the shares back and return them to the original owner. Since you sold high and bought low, you make money on the difference, minus the cost of borrowing. Since Tesla is a controversial company, there are lots of people who want to bet against it by shorting it. The idea is that owning this stock would allow me to be a lender and collect the commission.
In order to buy a share, I need something called a Brokerage Account. It is similar to a bank account, except it holds both cash and financial instruments. I believe most investment banks offer one, but there are few better known players out there. In the order I tried them:
- Vanguard. Good reputation, but they don’t like my non-resident alien status. Did not use.
- Fidelity. They allowed me to open an account. I wanted to fund the account and it gave me a cryptic error. Already in doubts about their software team. I call them and they tell me to go to their brick-and-mortar office in person (because I am a non-resident alien). I go in person, they tell me I could have called. They look into the issue and tell me that there are few more papers I need to sign. One of them has a mandatory box to tick requiring me to be “a US person”. I explain to them that non-resident aliens do not qualify as “US person”. They tell me they do. I stop there. Did not use.
- Wealthfront. These guys only trade ETFs. Used them for other trades.
- RobinHood. At first they seemed like a toy startup, so I did not really trust them (while writing this, they just became a unicorn). Giving them a second look, they are pretty awesome. Even the no-cost market data feed alone makes them super valuable. Will definitely give them a shot in the future (shall they be okay with my immigration status). For now did not use.
- Interactive Brokers. These are the guys I went with. Not sure if they are the right ones, but they accepted my immigration status with no problem. Their interface is a bit clunky and their login system is a bit silly, but they did the job well. Throughout the rest of the article, I will focus on how they did it.
Opening an Account
It is March 19 2017, I decided Interactive Brokers (IB) is the way to go, I want to buy that $261.50 share of TSLA. First issue I discover: you cannot create an account overnight. It is actually a lengthy process where one must submit a decent amount of documents, proofs of identity, proofs of address and other paperwork. It also happens that I work for a broker-dealer company, hence additional regulation required IB and my company to talk about my eligibility.
Next problem: I have to fund by Brokerage Account from my Bank Account and also to prove that I own the Bank Account. The protocol is usually them sending me two small transactions and me confirming the exact amounts received. Funding wise, I asked for $10 to be sent, just to see that it works.
March 21st, I received $0.35 and $0.03 debited into my account. I confirm the numbers, my two accounts are linked, I now need to wait for the $10 transfer. March 22nd $10 were finally deduced from my bank account, but I can’t see them in the IB account. March 23rd and few phone calls later, I get confirmed that all paperwork got through. March 29, my $10 is available, transfer worked.
Those $10 are not enough for getting a share of TSLA, so I am about to transfer more money, but this time I can’t. I have to enable 2-factor authentication. I do that and now the app keeps crashing, possibly because my Chrome browser is 1 year old. I update, but now my entire browser crashes. Apparently Chrome introduced SUID Sandboxes through kernel namespaces sometime last year. However, my old 3.11.0–12-generic Linux kernel is does not support the feature yet. Or something along those lines anyway. Don’t want to know more, I go to sleep.
March 31, I have an idea: I have Firefox. I load the app, surprise, it works! I debit the account and I wait again. Apparently it takes 5 business days for the transaction to settle.
April 6th, Thursday night, money gets in. I decide I wanted to get some TSLA the next day, but I wake up really late and run to work. Back at 6, I would like to buy, but the market is closed now… Totally forgot that this is not a 24/7 service and that I have to trade Mon-Fri 9:30–4:00 New York time. And the week-end is just starting.
The day of trading
Monday April 10. I anxiously wait for the market to open. Price has just jumped up 3% since Friday. I login to the console and I am overwhelmed by number of options I have and by the poor UX/UI that IB provides to me. I know I want to place a “BUY LIMIT ORDER” of X TSLA for $Y, which means “I want to buy X shares of TSLA for best sell price that is <= $Y”.
I look at the “Market Data” (which shows the current Bid / Ask price) and I see that the price is at $310.80. I place a buy order for 1 share at $310.80 and I wait. Few minutes later, my order is still not “filled”. I check the Market Data again. The Market ran away from me while I struggled to find the Submit button. It is now at $311.95.
I submit a new order for $312.00. But this one doesn’t get filled either. I look at the Market Data again. It shows me that someone wants to sell for $311.70. I want to buy for $312.00, so we should “cross”, but why am I still “pending”. Few minutes later I realize that I was cheap and did not purchase a Market Data feed, which would have costed me another $10 a month. The free option gives me delayed information.
I decide to use Google Finance for my “Real Time Market Data Feed”. I see there that the price is above $312. I submit one more order for $313.00. This one gets filled for $312.72 instantly. I own my first share of TSLA.
After Credits
Since I am writing this article on May 5, here is what happened next. I bought the share for $312.72. April 10 closed at $312.39, so I lost $0.33 (0.11%). Not a great first day of trading. Since then the market kept swinging and it reached it’s low just 2 days later on April 12 when it closed at $296.84. By this time I lost $15.88 (5.08%). From there, it kept going up and hit the highs on May 1 with an awesome $322.83, giving me a profit of $10.11 (3.23%). By May 5, the market came back down and closed this Friday at $308.35, $4.37 (1.40%) loss.
Looking at the most obvious what-if: if I were to make my trade on March 19, the day I opened the account, the share would have costed $261.50. That is a difference of $51.22 (19.59%) from what I purchased in April 10. Opportunity cost is real.
Conclusion
In retrospect, his was a pretty cool experience and something I long dreamed of. It would be nice if the logistics of the Financial Market would align with 21st century technology. In the future I might try Robinhood as well, just to see if startups do indeed disrupt industries.
I hope this post is useful to you at some point. If you have any questions or spot any mistakes, please let me know in the comment section below or on your favorite social media platform.
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Disclaimer: everything in this article represents my own thoughts and opinions. I have not received compensation for promoting any product presented in this article. Nothing I said should be taken as legal, tax or financial advice.
