I hope you learn from the top investing and trading mistakes I’ve made so you don’t make the same ones! I’ve personally always enjoyed learning vicariously through others so as to hopefully not go through some forms of misery, but sometimes our mistakes can be our best teachers. I know many of my mistakes were a result of behavioral lapses rather than making incorrect calculations. When you separate the objective, rational thought from actually having to take action — our emotions such as fear can sometimes lead to subpar judgment.
1) Buying a popular company just because I’m a millennial
2) Short term capital gains tax
3) Not able to fully compound my investments at all times (FOMO IS REAL)
4) Errors of Omission & Commission
5) Buying an IPO company without studying it
6) Past Performance is not a guarantee of future success
7) Getting faked out by the market on timing
8) Impatiently buying my stock position all at once: not tranching in
9) Options or derivatives can be weapons of financial destruction sometimes
10) Value trap companies: losing money would have been a terrible mistake
When you were in school (or if you still are), do you ever remember when you answered a test question a certain way, but deep down in your gut you knew you probably entered the wrong answer? Sometimes, making investing mistakes can be like that. I plan to learn from each and every one of my mistakes and try very hard not to make them again. That’s the same thing Warren Buffett and Charlie Munger try to do — they try to just not be stupid (Charlie’s words hehe). The important thing is to forgive ourselves for any mistakes we might make either now or in the future, and then just keep learning and self-improving.
One of the most tried and true ways to avoid making these mistakes is to consistently stick to the basics: evaluate company fundamentals using investing valuation strategies you trust (I go by the Buffett/Munger style), buy a wonderful company at a fair price or on sale, and hold it forever. Even if maybe the company reached intrinsic value and it might be time to sell because we’re at all time market highs, that same wonderful company will probably have its business value recognized by the market eventually again. Or so we may hope our investing thesis is correct someday. But that’s also why we try to buy with a margin of safety (MOS) in case we’re sort of wrong so we don’t lose money.
It’s also difficult to be a contrarian in a market that feels like it just keeps going up (bubble!), though I believe nothing goes up forever so there will be a correction again. The fear of missing out (FOMO) is real when you feel like everyone around you is making easy money, but it’s also flashing red signal lights that perhaps the euphoria is fleeting. My preference is to be invested as much as possible so I can be compounding my saved money, however, sometimes in channeling my inner Buffett it makes more sense to prepare for the rainy market day with a bucket of cash rather than a thimble. I’m waiting until it figuratively rains gold again, and I’ll be ready — emotionally ready to commit and with a stock buying wish list in hand.
All of us are on our own hero’s journey towards FIRE (Financial Independence, Retire Early) and this journey is one filled with making mistakes, but also much gratitude and enlightenment, and I look forward to making more investor friends.
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