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First, the necessary disclaimer: I like risk — a lot. And chances are I don’t know you or your financial situation. My thoughts on investing should be considered entirely anecdotal. Nothing I say should be construed as financial advice that has you, or your best interests, in mind. I have no problem risking all my own money, but don’t weigh down my conscience by vicariously investing yours based solely on something you read online.

As a partner in an American LLC I’m responsible for my own tax planning. Tax, social security or Medicare are not withheld from my paycheck. Partners pay estimated taxes and self-employment taxes to cover what’s usually withheld by employee payroll.

Since I learned a lot of my business acumen from survival situations, I’ve developed a love for Opportunity Cost, and a hatred for not maximizing funds (like, say, paying for a year of car insurance in advance instead of investing the excess).

For the past couple years I’ve been lumping my personal tax savings in with my regular weekly investments. That means, while I’m responsibly setting aside enough money for taxes, I’m riskily throwing that money into the stock market to be potentially consumed by mass paranoia or emotional stock picking. It also establishes a terrible thing in investing — a deadline. I pay my full lump sum of taxes in April along with a penalty for not prepaying using estimates. That penalty is around 7%, but it’s capped at 7% of my total taxable income for the previous year. It’s a calculated risk.

Supposedly, capping the penalty to your previous year’s income is forgiveness for your inability to plan for unexpected raises or windfalls during the current year. According to the IRS, you should always estimate by paying at least as much as your taxes from the past year. That’s reasonable. If you don’t estimate enough, they tack on a penalty because you didn’t allow them to squander any of your hard-earned money before April 15th.

As a partner with a major material impact on my company, and a direct share of profits, I’ve been safe in assuming I’ll take home over 7% more for each year I spend building the business. So far things have been good and it’s been well over that.

So my entire game with investing taxes throughout the year is trying to beat a 7% return with enough extra profit to make the risk-taking worthwhile. In reality, since I make and invest more each year, the target is a bit less than the full 7% penalty. If I play it too safe, I’m not going to beat the market and I would have saved money by just paying my estimated taxes. If I play it too loose, I’ll lose some of my principal on top of still paying full taxes and penalties.

Just before the recent market dip this November I was running about 35% ROI for my entire portfolio (including gains on recent deposits). At the moment it’s about 25%, but that’s still plenty to make this risk worthwhile.

To take on this reasonable risk I’ve found myself coming back to a couple habits. I’m sure fragments of these habits were picked up from learning and reading over the years, and a lot of them are common sense. However, sometimes there’s a longer road to a common sense answer and a shorter road to a convoluted one (due to the convolution often being more fun/interesting/challenging). I don’t claim these tenets form some proven system, that it’s reproducible, or that it’s even unique. It’s just what I’ve found works for me.

1. I forget that the numbers in my portfolio represent cash-money dollars that I can buy things with.
   If I was constantly measuring gains or losses in HDTVs, Macbook Pros or new cars then I’d drive myself crazy and I’d start to get apprehensive. I remind myself that the swings, up and down, don’t matter until I actually pull my cash back out of the market. In long-term investing you can generally wait as long as it takes to get paid — or at least until you see a much better deal that can offset your losses. I still have to respect my Tax Day deadline.
2. I stay blissful when the market is panicking.
   I always know what I want to be buying. All my watch lists show the current price between the 52 week low and 52 week high, with the P/E ratio, growth rate, EPS estimates and volume following immediately. I get really familiar with my watch list stocks so I know the range they like to run around in, how they react to good/bad news, and if they’re commonly manipulated by big money before noteworthy events (*cough*, AAPL). I’m not trying to “time” my buys in the trading vs. investing sense — it’s just all about perspective when everyone else is emotional. I love to “stock up” from my wishlist during a good cathartic market dip. I plan to go long on all the things I buy. I’m holding many of those buys well beyond Tax Day.
3. I limit my lovin’ to 10 stocks at a time.
   One of my early mistakes in buying stocks was having so many “good” ideas that I was essentially running my own mutual fund. Any great picks I had were averaged out by the overwhelmingly mediocre ones. I had a really hard time staying ahead of the market while doing that. Today I limit myself to no more than 10 individual stocks at a time, which forces me to focus and properly capitalize those picks. I never have to worry about not having enough “oomph” behind a well-researched pick that pops, and if a stock really takes a beating I’m familiar enough with it to know whether to kick it to the curb or buy more at a discount. (Since it’s one of my privileged 10 I’m usually buying more when something temporarily drops.)
4. I focus on my overall market value (balance) more than my gains.
   Since my goal is accumulating money, for taxes and the freedom to do what I want in life, I try to stop myself from hyper-focusing on the gains of a specific stock or my portfolio as a whole. Because I deposit money into my brokerage account weekly I’m constantly pulling my total gain down slightly, but my balance (with gains and deposits) is constantly going up. That doesn’t mean I ignore stocks that are going down, or that I don’t cull stocks with bloated gains, it just means I stop pretending my game is trying to hit 200% on AAPL or 50% on the whole portfolio. I’d have to start employing counterproductive tricks to keep overall gains that high. By watching the balance I don’t lose perspective of the big picture during a dip.
5. I compete with and against friends.
   I find it much easier to adhere to my rules when I’m constructively competing against friends who have their own investing methodologies. Some of my excessive love affair with risk is tempered by looking at what more moderate (or even risk-adverse) friends are doing, and how well it’s working out for them. It’s also really encouraging when my strategy hits higher highs without having lower lows. Despite the benefits of camaraderie, it wouldn’t be nearly as much fun if we all tried to do the same thing — but a little overlap on a stock pick where two of our strategies meet is a lot of fun.
6. I “double down” when the market forces irrational losses.
   If a stock I’ve done my homework on starts dropping, rather than trying to sell my positions for a better entry point later, I find myself just buying more. This is often referred to as pyramid buying, because you start with a smaller position to test the waters and you buy increasingly more as you’re more confident the bottom of a crashing stock is near. This is a really risky tactic, and it’s something I only do when I’m completely convinced the market is being irrational and applying market or industry paranoia to a specific stock that doesn’t deserve it. Some people appropriately call this strategy “trying to catch a falling pencil” (a lesson I only had to learn once in elementary school). I try to keep in mind that the perceived stock price and the value of a company are often two completely different things — but over enough time they generally come back into harmonization and complement each other.
7. I enjoy myself.
   Managing my stocks this closely would probably feel like a part-time job I had to do each morning if it wasn’t such a fun game. “Down days” require a completely different strategy than “up days”. Each of my 10 stocks in this portfolio feel like a chess piece that is benefiting from, or defending against, specific events. The picks work together, and often I’ll watch as one or two pick up the slack while the others are getting beat up. Some days everybody except one or two is having a party, and they tell the down stocks “Don’t worry, we’ve got ya covered! You saved our ass last time.”