Tuesday, June 17, 2014

Mistakes I've made in my 4 years of investing

I take comfort in knowing that the construction of my current dividend investing portfolio has performed admittedly well so far. However, it doesn't mean that it has been a smooth path constructing it these few years. In fact, I've made a fair share of mistakes over the past couple of years and I will be the first to admit that there will be more to come over the next few years. But experiencing these mistakes myself makes me a better investor, whether true or not it's still unproven.
 
 
1.) Focusing on purchase price, not valuations
 
I used to place a lot of focus on the purchase price I bought the stocks, irregardless of whether they are considered cheap or expensive in valuations.
 
When the stock advances 10-20%, I will take profits and kiss goodbye to the stocks I owned. Because I was so fixated at the percentage of profits earned, I never really allow the stock to run to reach its true valuation. As a result, I missed the additional run in profits for the few stocks I used to own.
 
2.) Focusing on not making "realized losses"
 
Many people have it in their brains that they do not connect with losses, realized losses specifically. And so was I guilty of the same.
 
When the stock I purchased declines in price, again I refused to cut loss on it, thinking that the stock might one day come back higher. As a result, there were plenty of missed opportunities as the stock declines lower and lower. Again, this could be attributed to the lack in focusing on the valuations we mentioned above.
 
3.) Buying on Analyst's call
 
Back in my early years of investing, I used to depend a lot on an analyst call reports, especially if I saw a few consensus report calling for a buy. I think this is a trap that many retail investors still fall into until today.
 
Upon reading it much conservatively, the analyst's report is taking in a lot on assumptions which was not evident and backed by stronger evidence. For e.g, they may use a constant growth rate over the next 5 years or they may use a higher multiples to substantiate their justification in their target price. All of these assumptions are ambitious in nature and should be taken with a pinch of salt.
 
4.) Buying only the blue chip stocks
 
I used to only frame my stock list on blue chip stocks and ignore the rest, thinking that these companies are more stable and they are less subject to volatility and external shocks. And I was proven wrong of course.
 
Stocks such as Noble and Olam have seen their fair share of volatility in the past few years and have perhaps a lesser return on equity than other mid-cap stocks.
 
Now, I have expanded my lists to include the mid and small cap stocks to see if they are fundamentally good and is worthy to be added to the portfolio, depending on risk appetite and returns.
 
 
These are the 4 main mistakes that I have made over the past couple of years of investing and I hope I have learnt from it. What about you? Any mistakes you have encountered that you are willing to share with us?

15 comments:

  1. and following friends' advice maybe?

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    Replies
    1. Hi Dividends101

      I like to exchange opinions with my friends but it was hardly the case where I would blindly follow their call. I guess we need to do some due diligence at the end of the day :)

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  2. Replies
    1. Hi Uncle CW

      Hmmm maybe not stock tips but investing tips yes very much so from you yourself :)

      Delete
  3. To have confidence in what i do is good. But over confidence will or makes me lose a lot of hard earned money. i think i have over estimate myself at times.

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    1. Hi temperament

      Was that during your early days of investing or does it still happen every now and then today? I would have thought with your experience this would be the least concern of worry to you.

      Delete
    2. Ha! Ha!
      To really learn something in the market you never forget, you have to pay for it in practical terms-$$$. (Who hasn't paid, raise up your hands)
      i think i have paid enough. On the other hand, i can't say i have nothing to learn anymore. Have to be careful and not to be too greedy now. I think it's never more true for me the saying, "Return Of My money is More Important than Return On My Money"
      In other words, i just only need to take the risks that can meet or exceed my "Financial Hurdle". (aka yearly expenses) and then some for meeting inflation. If i can do that, i will be very happy already. No more big risk taking for me.

      Delete
  4. Frequent trading with small amount - lack of discipline to do nothing

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    1. Hi CSCCC

      Contrary to you, I think there were at times that I would round up my trading amount just because I want to save on the commission. Turned out to be worse actually...

      Delete
  5. B,

    It's this "sharpening the saw" exercise that make us better and improve - be it in our corporate job, relationships, or investing.

    I raise my glass to you.

    Ganbei!

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    Replies
    1. Hi SMOL

      Thanks for your encouraging words :)

      I feel too many people are focusing on the skills and strategies for the future that they find too little time reflecting on their past mistakes. Some people might argue that it's useless to do so because whats donehas been done but I think both of us have something to say about that.

      Ganbei and cheers back ;)

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  6. Mistakes made near the Bull may not be the same mistakes near Bear bottom.

    Think deeply again over one of your mistakes. :-)

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    Replies
    1. Hi Uncle CW

      I think you may be referring to the cut loss portion.

      I am still unable to imagine how will I react should I be involved in the 2008 gfc when stocks decline like there's no coming back. I might hv impulsely sold the stock back then and regret right now.

      I think once you have experienced those terrible cycle you should be good with all other economic cycles.

      Delete
  7. Nice recap! All are valuable learning.. Thanks for sharing. They are all useful lesson for newbie like me ;-)

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    Replies
    1. Thanks Richard.

      We are all learning from one another ;)

      Delete

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