10 Investment Mistakes That I Have Made So That You Don't Have To!
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To err is human! We all make mistakes, that's how we learnt. Albert Einstein once said "Anyone who has never made a mistake has never tried anything new" There is some truth to this. Personally, I do agree that human learn from mistakes, in fact learning from mistakes started way younger when we were in adolescence than we can ever remember, it's just that as we grow older, we tend to made careful considerations before we commit to a mistake. For example, I learnt how to cycle after a couple of falls, I picked up swimming after swallowing a few gallons of water, I learnt how to walk from crawling after a few tumbles and the list goes on. Humans are programmed to make mistakes! It is how we pick ourselves up mistakes after mistakes that we actually learn. And well yes, there are talented people around us but most of us belong to the majority if we are to follow the universal 80:20 rule.
When I first embarked on my investment journey, I made tons and tons of mistakes... I am listing them down so that you do not have to go through similar anguish and realization when you decided to take your first step into investing. While these mistakes are not the hard and fast rule to successful investing, it will provide a framework to kickstart your adventure into the world of finance.
1) Starting without understanding
Read, read and read. In this world of vast information, there is no reason to not know anything that is happening by the seconds. Not knowing how to invest is NOT a reason. If one wants it hard enough, they will find any answer to the problem. When I first started investing, I took a leap of faith that not only cost me time and money but also the tons of frustration that comes along with it. My initial thought was to start investing regardless if I was able to understand how the financial market works. I told myself that it is better to be in the race than not racing and boy... I was wronged! I went in fearless and was caught on the wrong end of the deal. Not only did I buy into equities when they were at all time high , I bought stocks that I deemed emotionally as "sound and stable" without looking into the fundamentals of the underlying. If I can go back in time, I will learn how to walk before learning how to run.
2) Finding a mentor
I learnt it the hard way... I would spent hours, months and years trying to understand the financial markets. When given a chance, I would literally force myself to read about current affairs and the macroeconomics of the world and if I do not understand a particular topic, I would spent days finding information about that topic. I searched for articles and videos relating to the subject and forced myself to immerse and soak everything that is needed to know about the market. If I didn't understand or grasped a concept, I would replayed the video again and again and just listened to the audio while allowing my mind to form thoughts thus enhancing the learning process. Often, I would also read too many articles and watched too many videos to the point that I would digressed away from the actual learning. If I can turn back time, I will find myself a mentor. Someone who is able to shortcut all these learning process. Someone who can point me in the right direction. Imagine all the time that I could have saved?
3) I got a "feeling" wooohooo....
My first investment in 2005 went into buying Singapore blue chip stocks. Since they are generally popular, stable and well established, I thought what can go wrong? I bought shares of Singtel, OCBC and Singapore Press Holdings. Looking back, I bought them because I "felt like it". There was no real reasoning to my decision, I bought them simply because I "think" that they are good. Since Singtel is the biggest telecommunication corporation in Singapore and provides the most stablized network in the city, Singapore Press Holdings being the ONLY press outlet in Singapore and OCBC since... I started my investment account with the bank. What ignorance! I bought these stocks because I really felt it that way! My decisions were not based on numbers relating to balance sheet, profitability, forecasts... it was based on what I think was right, as a results I was given a tight slap on the face and proven wrong... Singtel stock hardly moved, SPH has lesser printed publication due to the rise of online media, OCBC (probably one of the better choice) has a lower share price as compared to UOB and DBS which resulted in lower capital gain. Feelings don't count shit when the numbers go South. Understand what you are buying into with a reasoning that is backed firmly by figures and not feelings. Numbers don't lie.
4) The "Expert" views
I literally lost a few thousands by just listening to "expert" views. The conversation usually goes something like this" I have heard of this XXX stock that is rising so much recently and it is a sure win! If you don't buy now, you will miss the run up" Most of the time, this kind of suggestion can come from a person who can be trusted, e.g. your best friend, your mum, your boss, your colleague... this is because if this was a suggestion given by a stranger, you will not be tempted to take any action. Most of these genre of "expert" views usually lead to losses. ONLY invest in things that you know and haven't taken all the necessary steps to understand what you are buying into.
5) Plan your investment
Planning your investment is one of the important factors to investing, if not the MOST important factor. If you do not plan your investment, you plan to fail. If you have not read my previous post on planning, here it is Taking the first step!
You might have heard of lottery winners winning the biggest lottery of their lifetime only to go broke again after a few years of being wealthy. When struck by a windfall, not many people are ready to manage their newly founded wealth yet better still, manage it properly. How to buy? How much to buy? What to buy? Where to buy? When to sell? Most beginners know that they have to buy something and that's just the beginning.
Learn more, earn more!
6) Wanting to start but not wanting it hard enough
Why do you invest? I like to think that everything that human does start with a thought. If thinking hard enough and the thought process will transform into actions. Unfortunately, more people start and stop at the thinking level. How many times have we told ourselves that we need to watch our weight? How many times have you told yourself that you want to quit smoking? The truth is, our brain which is actually a very powerful organ can manifest anything and everything that we can ever imagine but our body (the irony that it is actually control by our mind) often falls short. It takes lot of will power to effect changes. We often seek comfort in things that we are familiar with, so when our brain starts telling us what to do, we immediately look for solution that remains comfortable. Work your mind first and the executions will come.
7) Excuses, excuses, excuses!
"When I have time...", "When I have enough savings...", "When I retire...", "When I am old..." All sound too familiar? In fact, these excuses are not exclusive to just investing, they lurk around us all the time. How many times have you heard of people who say that they are going to quit smoking only to see them puffing away after a few months of trying? Or perhaps, that guy who exclaimed that he was going to lose weight because he wanted a healthier body only to see him gaining more weight? Or maybe that person who have always wanted to travel the world and taking that well deserved break but only to sloth hours and hours away working overtime? Wanting to do something does not equate to doing something. It takes more than a statement of self declaration but actually getting your hands and feet dirty with execution. Being consistent is basically the same as making things a habit. Once a habit has been developed, just as smoking, gaming, working, eating... it can be hard to kick it away. Make your commitment a habit.
8) Timing the market
"I will buy when the market comes down"... when the market literally came down. "Aiyah... I will wait a bit more since it is already down"... then market goes up. "Oh... since now the market is up and the share price is higher, I will wait again..." and the cycle continues. Imagine this... you have always wanted to buy that expensive shirt from this luxury store, in fact, you liked it so much that you actually took notice of the price and kept a look out for a possible discount or a sales of any sort. One day, as you walked pass the display window, you saw this big signage outside the store: MID YEAR SALES 30% off all merchandise. Do you: 1) Enter the store and buy the shirt immediately or 2) Skip the sales and wait for it to drop another 20% as the price is still not ideal enough. Here are 2 outcomes:
a) Buy the shirt at 30% discount. Price of shirt goes back to normal after the sales.
b) Didn't buy the shirt at 30% discount. Price of shirt goes back to normal after the sales.
Which of the above scenario will give you a bigger sense of loss? Buying at a discount? or not buying when the shirt is on offer?
And what is the discount drops further? Buy more at further 20% discounts!!! Will you buy more? or will you pray for the discount to crash more? And what if the price of the shirt goes back up to normal price?
While a good buy price is important in all investments, knowing when to buy with a good buy price is extremely important. Remember, you don't want to buy the shirt at an undiscounted price and neither do you want to miss out on the discounts when it is right in front of your face.
"Ayohhh.... I should have bought earlier..., now it is to expensive to buy liao"
9) Be ready
If you have read my previous posts, I couldn't have said this enough. Imagine this... What if I can see the future and I am telling you that the stock market is going to rise tomorrow? Will you be ready to enter the market? Knowing what to buy, where to buy and how to buy? Of course, no one can be certain about the future so this hypothesis cannot be true and also go back to my earlier point, don't believe 100% on the expert's view. But what if you are a time traveller and you can go back to the last 20 years and enter the market from every buying opportunities there is to offer? The Global Financial Crisis, the Dot Com Bubble, the Asia Financial Crisis, the Covid-19 Crisis, 911, War on Iraq, US Sub-Prime Crisis, the fall of Lehmann Brothers.... and the list goes on and on. Do you know what to do? Being ready doesn't mean that you have be 100% on your toes all the time, it means that when you are prepare and ready to struck on the opportunity, you will not be left out of the game.
10) Live your life and be present
Being able to navigate your way around the financial market through speculation using probability can help one to make use of defunct market opportunity. There are certainly risks involved when it comes to investing as such it is essential to explore your own risk appetite through the many investing methods. At the end of the day, there is no right or wrong as the stock market does what it is supposed to do and the more risks that you take, the higher rewards that you are going to reap. The stock market is not everything, in fact with all the money that you have earned, there must be a life to enjoy the wealth. One must not forget about health and relationship as they grow their riches progressively. Those who wants to strike it rich in the stock market, never last very long...
Ben is not financially trained. He is not a certified financial planner and he does not sell any insurance or investment plans. He is not financially motivated by any entities to produce this blog. He just want his friends to know more about money management and not have anyone fall between the social cracks. Nope, he is not a millionaire though he aims to be financially free before 50 years old.
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