A decent amount of my blog posts will cover the topic of investing.
Right now, my knowledge is still somewhere between beginner and intermediate. I know a lot of stuff and can share many high valuable tips and tricks with you. Some things I’ve learned from books, websites, blogs and podcasts. Though, the most important information I can provide to you, are my experiences and failures.
Especially failures are an irreplaceable source of information that we need to translate into knowledge and use for further success. You can only win on the stock market if you start learning as soon as possible how everything works. However, you learn the most by failing.
So an early key takeaway from this post: You need to learn from your failures! Start failing now and do you own investing mistakes!
There are many great quotes about failure out there. Anyway, I want to motivate you, even more, to finally start changing something about your finances and accelerate your success by failing sooner, I have put together 2 of my favorites.
I missed more than 9000 shots in my career. 26 times I was trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.
Aim for failure and you’ll always succeed.
My blog would be of little use if I just let you go and tell you to fail as often as you can. That’s why I put together a list of my top 5 failures from year 1. I think you can not only learn a lot by experiencing your own investing mistakes but also by reading mine. I want to substantiate this by a final quote.
Don’t read success stories, you will only get message.
Read failure stories, you will get some ideas to get success.
–APJ Abdul Kalam
Investing mistake 1: I stopped investing as the market went low
The first mistake on my list is a little counterintuitive for newbie investors. You want to invest as much as possible when the market is low. You may think: ‘If the market moves towards the bottom, it’s risky to invest because it could never move up again.’
First of all, the market moves in cycles, so the market will always go up and down and your stocks will (mostly) do exactly the same.
Furthermore, falling stock prices mean you can buy more stocks for your invested capital. If you think a company is a good investment choice, you want to have as many shares as possible.
Lastly, if you evaluate stocks you will calculate their intrinsic value (the value you think they have and not what they are traded for). If you think a share of company X is worth $200 and they are sold for $180, you can potentially make only $20, as you would sell them if they are close to $200. However, if this company is traded for $100, there is 5 times more money to make.
That means low prices for good stocks are great as you want to buy them as low as possible. A high price is only beneficial if you want to sell them soon.
The problem here was my emotions. Investing is an emotional game for most of the time. When the market goes down and everyone is running around like a headless chicken and is screaming: ‘Sell! The crisis is here!’, you want to stay cool and use your knowledge that the market will always go to the top again. Even more important, just because your stocks went down last month does not mean you should sell them right away.
Solution: Trust in your evaluation and stay calm. If you have done your homework there is no need for hysteria.
Investing mistake 2: I didn’t do my homework
With that said, let’s discuss the second section of my investing mistakes.
Do your homework. I didn’t do mine.
As an investor, you want to know what you’re doing and what you’re buying at every single moment. This doesn’t mean you have to read the Wall Street Journal or follow the hottest stock market influencers on Twitter. It’s much simpler. You want to constantly learn and improve. Also, you want to do a very detailed evaluation before you buy a stock/fund/etc.
My very first purchase was great. I researched different index fund alternatives, read some books, played around with the tools and was 90% sure that it was a good investment. This is probably the best you can get with your first purchase. This ETF is still by far my best investment with more than 20% annually.
As the time went by, I became lazy and my stock picks sloppy. After year one, I was still in the black. However, I went down a lot and stopped investing for several months as I wasn’t sure what I was doing (see Investing mistake 1).
You don’t want to be in this situation as I stopped buying stocks when they went low just because I didn’t trust in my evaluation. A very detailed evaluation is the most important thing you can do. Don’t fail on this and get stuck like I did.
Solution: Do your homework. Make a very detailed evaluation and don’t get sloppy over time. Don’t think about it like buying a small share. Think about it like you would buy the whole company.
Investing mistake 3: I didn’t study more than one strategy
Investing in index funds was the first strategy I have heard of. I was fascinated. I was excited. But I should have taken a look deep inside me and also to the right and left.
Don’t get me wrong on this. I still think index funds are the best solution for 80-90% of the investors. You can start easily and the evaluation doesn’t require much work on your side. They will provide you solid returns with a very low risk.
However, index funds are not the best solution for me. I am a geek. I like to do everything I do very professionally. It’s not enough for me to use a solution that provides me solid returns with low effort. I wanted to delve deep into investing. I wanted to be an expert in a strategy that gives me much more than the market. Index funds give you something that is very close to what the market returns.
Again, don’t get me wrong. It’s great to match the market as most mutual fund managers are not able to do this. A return of 8% annually is also just great. Though, it’s not what I am looking for. I’m totally fine with just getting 6% but being able to learn a lot and picking the stocks on my own.
You need to know what’s out there and also what’s inside you. I picked a solution that is totally fine for 80% of the people. But I am not one of the 80% of the people. There are great strategies I take a look at, right now, like value or dividend investing.
Solution: Try to do some research on what’s out there and listen deep inside you. I don’t suggest to avoid index funds. They are maybe the best fit for you. However, there are not for me.
Investing mistake 4: I stopped learning
This year I had a lot of work to do. I changed my job to a big company in Germany. I also graduated from college and had to take the last courses. Finally, I tried to learn Serbian (still doing) and moved to the other part of the country for one month.
Anyway, at some point in time, I stopped reading my books and listening to my favorite podcast (The Investors Podcast). I didn’t learn new things and forget some of the stuff I already knew. As an investor, you always want to become better and improve your skill- and mindset.
Yes, you learn a lot from making investing mistakes. Though, you still want to avoid as much as possible. You can only make the best out of your investments by having a decent amount of knowledge.
Solution: Take aside a fixed amount of hour(s) to learn something new about your investment strategy or accounting. This will help you a lot on your coming decisions.
Investing mistake 5: I didn’t increase my monthly contributions
As I already mentioned, I changed my job to a bigger company. As a consequence, my income increased by 200 EUR. Normally, I would have split this money to my different short-, mid- and long-term contributions. My only long-term contribution is investing right now.
Instead, I created new short- and mid-term savings and increased my spending money.
It’s not so bad at all. I was on a very tight budget at that time and I really wanted to start saving for our own apartment as Mrs. Budget an I want to move together this year. However, the amount of money I save for our apartment compared to the increase of spending is just not reasonable. I could have easily put some bucks into my investing budget.
I’m looking forward to fix this in the coming months which won’t be easy as Christmas and birthdays are coming soon.
Solution: If you get some extra dollars per month, try to split them equally on all positions. It’s okay to increase your spending money but don’t forget about your investing budget.
What are your investing mistakes?
If you have also faced some failures in investing, feel free to share them with me in the comment section below.