2 of My Biggest Investment Mistakes
Investing in stocks can be daunting for the new investor. Many pitfalls can lead to painful losses and demoralising returns. As such, I want to share two painful lessons I learnt during my first few years of investing.
Be the devil’s advocate
When I first started investing, I was like a kid in a candy shop. I was tempted to buy every stock that my friends or broker recommended. This is perhaps a common phenomenon for new investors as we are eager to get in on the action.
Inevitably, this mindset was my biggest undoing. Within a few weeks of deciding to invest, I had already purchased five different stocks, without even doing much research. I had read a few positive articles about them online and skimmed through their annual reports, making me feel that I had enough information to buy the stocks. How wrong I was. Before long, most of my stocks tanked, and I realised that I had made rash decisions on investments that were ultimately poor companies for the long-term.
The takeaways I got from that experience were to take my time before investing and to always be the devil’s advocate. On a first glance, many stocks look like they might be bargains or have attractive businesses. However, on closer inspection, there might be something amiss. As investors, we must dig deeper into the company’s dealings to ensure that what we are investing in is worthy of our time and money. Warren Buffett once said that we should think of investing in stocks as though we can only buy 20 companies in our entire lifetime.
Remove emotions from the equation
Investing can be an emotional rollercoaster, especially for new investors. During my early days as an investor, I scrutinised the price of stocks closely – a bit too closely, I might add.
Whenever the price of one of my watchlist stocks went up, I would feel that I had missed a golden opportunity to make money. This was extremely distressing and made me make rash decisions due to FOMO (fear of missing out). More often than not, this sort of rash investment decisions led to poor investments.
Greed and fear are two of the most common reasons for losses in the stock market. Numbing yourself from these emotions is, therefore, vital to make sound investment decisions. This can only come with experience.
The Foolish bottom line
New investors will inevitably make mistakes at the beginning of their investment journey. It is an unavoidable part of the teething process. Hopefully, new investors reading this can avoid the same mistakes I made and become better investors in the process.