Financial Jungle

Dividends4Life recently tagged me to write a post on My Top 3 Investing Mistakes. This series, originally launched by The Dividend Guy, is blasting through the blogosphere.

As the saying goes, “when you lose, don’t lose the lesson.”

1. Over Trading - After graduating from university in 1998, I found myself in a position to day trade $5,000 in a Royal Bank Action Direct account. I split my money 5 ways to buy high-tech stocks, and paid $29 per transaction; that’s $58 squandered away to buy and sell a stock. So, it didn’t take me long to realize that gluing my nose to the screen all day long was a high stress, zero-sum and money-losing game after fees. Which is why I’ve adopted dividend-investing as my preferred approach. It’s not intense. It’s positive-sum. It’s cheap since you buy and hold.
2. Allowing Emotions To Cripple My Judgment - One of my friends accused me of being too logical, and I agreed with him. But, I was kind of proud of it at the same time. I figured I was pretty good with numbers, and my pointy Vulcan ears would always keep my mind cool during financial upheavals. Of course, all bets were off when I started losing thousands in my trading portfolio. The story isn’t unique. I know this teenager from an investment forum who claimed to have been investing in stocks since 9 year-old — using fantasy money. Little did he know, the little pinch in losing monopoly money pales in comparison to losing real money that he may have saved for months or years. Obviously, I don’t have a heart of steel, but at least now, I understand what investment strategy works best for my psychology. At the end of the day, it doesn’t matter if you a dividend-investor, an ETF investor, a mutual fund investor, a real estate investor or a combination everything; the way to prosper in the market is to stay in the market in good and bad times.
3. Not Thinking Independently - I used to think scouring investment magazines, forums, blogs, and newsletters looking for top stock picks was considered doing my due diligence. But time and time again, I found myself drowning in a myriad of contradicting and unfounded investment advice. Many investment articles are written with inherit conflicts of interests. For example, hooking investors into buying stock-picking subscriptions, or favouring certain stocks in order to attract investment banking businesses. Even well intentioned wisdom by revered investors like Warren Buffett can be dangerous if not interpreted in the right contexts. But that’s another story. Ultimately, nothing beats absorbing investment literatures with a pair of unbiased eyes. Echoing sentiments of others is a recipe for long-term disasters.