Investor Mistakes and Solutions

 

We all make them don't we. If you don't well you're just not learning anything. Ever tried to downhill ski? Falling is part of the learning curve and without it you will never learn or become anything close to an accomplished skier. It's part of it so get used to falling down, brushing off and starting over with a new lesson.

You are going to make mistakes when you decided to put money to work. The following are just a few I've made and and how I fixed them. 

Buying What I Don't Know 

I went on a buying spree of epic proportions in the junior silver and gold mining space. I didn't have a clue what or who the companies were. I was just born in Northern Ontario and it seemed like the thing to do because my Dad was also once a miner.

Quickly and rapidly I managed to turn $50,000 into $8,000. I then compounded that mistake with selling all the stocks at a loss instead of waiting for a recovery. I didn't understand the sector or the names I was invested in. I listened to pundits and newsletter writers instead of studying the company myself.

Solution - Buy and invest in what you know a little about. If you know nothing about anything then leave it in savings until you do. Go to the library and study everything you can find on investing. 

Selling Too Soon 

This is an off shoot of buying what you don't know. You are more prone to sell too early when you don't know what you own. I regret just about every selling decision I've ever made in my investing life.

They always go up in price after you sell, don't they? Best to forget it and move on. Try to remember what made you buy the stock in the first place and then ask yourself if there has been any drastic change that would cause you to dump it. Take your time before you make a selling decision.

Solution - have an exit strategy. Do know how much of a loss you are willing to take. For stocks over $5, I allow no more than a haircut of 20%.

Put the money to work in something that is on the way up and something you know something about, like your bank where you keep your money.

Mutual Funds and Index Investing

Getting sucked into the world of modern portfolio theory. These are the experts that spew nonsense like asset allocation, balance, re-balancing and the 60-40 portfolio.

You want to own bonds in this investing climate?

These are people who make money off the people mentioned above. Those that don't know what they own. They dazzle you with company speak and tell you that nobody is smarter than the market just so they can sell you their specific products. I used to own portfolios consisting of nothing but mutual funds or index ETFs. 

I own nothing but individual dividend growth stocks where I can see the dividend income being deposited into my account. The problem with the funds and ETF products is the fees being subtracted from your account on a monthly basis.

Solution - Do your own homework and do your own stock picking and investing. YES you can do this on your own and you must take care of your own investing to have a secure retirement and NOT running out of money. If you continually listen to those who repeat modern portfolio theory you will pay out half of all your gains in fees to advisors. Why would you pay even $100 a month to someone to manage your money. Learn to do this yourself like changing the oil on your car.

My Final Take 

These are just a few of the many investing mistakes I've made and have now learned from. I was once a non swimmer but later became a working lifeguard. I couldn't walk with skis on but soon tackled the moguls and black diamond runs. It just takes time and knowledge.

We all lose money in the learning process. For now most of my money is investing in banks, utilities, telcos and pipelines. Companies that have been around for decades, are boring but consistently pay a dividend that rises in value every year.

I am focused on growing my annual dividend income, NOT paying any fees and adding to companies I already know and use.

Here is a recommendation on a book to help you with your investor education if you need it.