My Top 3 Investing Mistakes!
Hopefully, you can avoid them…
When talking about the stock market, usually we tend to make things rather positive and how “easy” can we make money…
Well, not so fast gents. As with most things in life, before we become good at something we all go through the “bang the head in the wall” phase.
Mistakes can be embarrassing but admitting them and learning from them is at least for me one of the best ways to grow as an investor.
Why am I sharing these?
Before I started investing, I did try to educate myself first and avoid the beginner mistakes everyone did at some point…
Everything makes perfect sense when you are reading a book or a blog post, but then it becomes harder to be disciplined and avoid the classical traps…
So yes, this was also the case with me. A series of mistakes that cost me than $10000 and which you can “easily” avoid. Having money sitting in the bank account earning no interest can be both a gift or a nice pain! You will understand why…
Mistake #1 — Volatility
One of my first mistakes was to blindly buy companies that we all know and not be ready for volatility. Apple, Microsoft, Google are just a few examples.
I can argue that the mistake was not in my actions but rather in my mindset. When you buy a “safe haven” stock praised by analysts, you don’t expect to be down 10 or 20%. And when you pour in 4 or 5 digits worth of stocks, believe me than 10% can be quite a lot of money!
2018 was a pretty volatile year and perhaps not one of the best entry points for inexperienced investors. Looking at your stocks every day and see plenty of red percentages is not an awesome experience.
If your mindset is not long term, you will be tempted to sell at some point after an aggressive drop.
As expected, I did lose a lot of money just because I felt I did something wrong with my stocks. Well the first lesson, the stock market is a rollercoaster and the same way it goes up it can go down. However, history shows that with time, the stock market always goes up.
The fact that the market is down, has to be read as an opportunity to buy more stocks at cheaper prices. If you did your research, companies don’t change their outlook drastically every day.
Mistake #2 — Emotion
Emotion. Yes, emotion can kill your portfolio. I now say that if you cannot handle emotions, your place is not in the stock market.
Volatility is normal and a 2% or 3% drop just after you bought a stock can happen and will happen again during your investing life. Sometimes, a 10% drop can come from disappointing earnings.
We are emotional human beings and most of us do have an emotional connection with our money. Usually, because we had to work for it so we will always be connected to that money that we did not spend and we are now investing.
Before you let emotions kick in, try to understand the reason behind such a drop. Is there any news? Is it just a market drop? Reasons can be many but also stocks can fall for no reason. There is always a reason but sometimes is a simple one. A big institutional owner might just be rotating money and decided to trim their stake.
When you are selling billions of dollars worth of stock, it will for sure move the stock price.
My golden rule to avoid the emotions connected to our money is to not invest money that you need in the next year. If you are buying a house, upgrading a car, taking an MBA do not use this money to invest.
Is very tempting to put money in the market hoping for a quick 5 or 10% gain but chances are that your investment will fail. There is a risk factor when you trade in the stock market.
Emotional connection is higher on the money that you will need in the short term.
What also works for me, is to simply close my screen or my stock app and just focus on something else. Sometimes such a simple runaway action saved a few hundred dollars but just not reacting to the drop.
Mistake #3 — Someone Else’s Investment
Copying someone else’s investment can be a good starting point but should never be the ending story. Many people tend to replicate known investors such as Warren Buffet and having at least some ideas what the big money is doing can be a valuable lesson to your portfolio management.
Copying the big gurus for stock picks, been there done that. In some cases, it worked well, in some others not well at all. Even the best investors do mistakes and misread markets. There is no secret recipe to success but informed decisions are always better than a blind guess.
However, if you are doing it blindly then I would not consider it a good idea. Simply because you are not deciding anything.
One of the reasons we start to look at investing in our own is mostly because we want to grow our ability to do better choices than just following an index fund. The decision for picking a stock over thousands of them must be based on research and not in a blind guess.
If you are not a fan of reading financial statements or you have no idea about the business of the company you just bought, then I would suggest you just invest in ETFs or mutual funds.
Researching a stock does require a lot of time and effort. Coupling research with a good entry point requires something more. Patience!
If you liked this article be sure to leave your comment below and follow me on Medium. I write about personal finance and investing.
Disclaimer: I am not a financial advisor. Always do your own research when investing.
