My Biggest Mistake In Investing and Lessons Learnt from It

It sucks to make investment mistakes.

Apart from financial losses, admitting a mistake is a humbling experience which can bruise pride and ego. It’s likened to saying to myself that I don’t really know what I need to know and taking responsibility for my own stupidity. Trust me. In times when I’m incurring these investment losses, I find it tough to admit them.

But now, looking back, I’m glad that I did so.

In fact, I would not be where I’m today as an investor without these mistakes. It may sound funny. But, after decades of investing, I’ve learnt to appreciate them more and acknowledge that mistakes do contribute to my success today. Here, I would like to share an investment mistake that I made in the past and hopefully you’ll avoid this same mistake altogether.

My First Stock “Investments”

Let me take you back to a time when I was a 21-year old UTM student.

Coming from a modest background, I had little knowledge on managing money, finance and investing. I was totally new to stock investing and had no idea what the stock market is and how it operates.

As I recall back, my friends asked me if I wanted to trade stocks. They’ve started trading stocks and I found it to be cool. I was even envious that my friends were given money by their own parents to trade stocks.

That to me was unthinkable as I had little pocket money to survive on.

It’s not only just that. I was hooked into stock trading as I needed fast money so that I could support myself through university and buy musical gears to support my passion for music. Plus, I gambled, betting spare cash on football matches and in casinos. So, stock trading seems more “legitimate and responsible” when it is compared to gambling.

Because of all these reasons, I opened a stock brokerage account.

My friend introduced me to a remisier. I stood behind him as I placed my eyes on his computer screen. From it, I chose and bought some stocks. There was no research and thought behind them. I bought them based on pure instinct.

Those “Investments” Went Sour

At first, some of those stocks went up in price. But then, they tanked hard. That sucked!

Then, I remembered a conversation with my roommate.

He shared with me “stock tips”, which he got from his brother who was working at a newspaper publication. We treated his tips like gold and acted upon them.

But, I had a problem. I ran out of capital as I lost it from my initial stock trades.

So, what I did was to borrow from my parents to trade stocks. Graciously, I have been given RM5,000 to trade and within months, I lost >50% of my stock trades. It was embarrassing and I was too ashamed to tell my parents about it. In the end of all these trades, I quitted and tried to forget it as if it never happened.

I was sweeping my dust under the carpet.

Years went by.

I considered them as total loss as I had warrants that expired and a stock, which had been delisted.

I Gave Up

In my 20s, stocks are taboos to me.

I want to erase those memories, put them out of sight and close this chapter. In a way, it’s similar to me not believing in finding love after a painful breakup. My initial way of dealing with mistakes is complete avoidance and total ignorance.

That lasted until I switched my career and joined the financial industry.

At that time, I began to learn about finances seriously. I read countless books of money management, personal finance and investment. Then I learnt that:

1. I was speculating stocks, not investing in them. There is a big difference between speculating, trading and investing in stocks.
2. Investing in stocks is about business ownership. Smart investors tend to study a stock’s business model, profitability, balance sheet, cash flow, and future prospects before investing. That is what value investing is all about.

By the time I realised the power of value investing, I was in my 30s. How I wish I knew all of these when I was in my 20s.

Back to My Drawing Back

Armed with knowledge and principles, I started to actively look for stock deals.

Instead of “bantai sahaja”, I studied a stock’s business model, financials, growth plans, management, and valuation. I’m now looking to buy and own businesses that could compound wealth for the long-term.

After some time, I found a company known as Berkshire Hathaway Inc. It is a US-listed conglomerate with diversified business interests which is owned and managed by Warren Buffett and the late Charlie Munger. From my research and studies, I discovered that Berkshire is fundamentally strong with:

●     Ever-Expanding Business Interests

●     Consistent Growth in Income Productivity

●     Strong Balance Sheet with Billions in Cash Reserves.

●     Superb management team who are the most trustable corporate figures in the world

Therefore, I invested in Berkshire back in 2012-2013.

Ever since, Berkshire kept on growing, expanding its business model, bringing in more profits and cash flows and enlarging its balance sheets. As long as Berkshire was fairly valued or undervalued, I kept accumulating its shares. I wasn’t willing to trade it for quick profits as my objective is to own these shares for life.

Apart from Berkshire, I’d invested in other fundamentally solid stocks, based on the principles learnt from investment books and writings from Buffett. All these learnings had shaped my thinking on how I invest today and they’d contributed to the management of my stock portfolio presently.

Conclusion

Today, I’m in my 40s.

I had experienced a significant jump in net worth from my investments made in my 30s. Sometimes I wonder. What could I have achieved if I knew what I know today when I was in my 20s?

Also, due to my avoidance, I failed to learn what I needed to learn in my 20s. As a result, I had a lost decade. To conclude, I like to share that mistakes are bound to happen and it’s part and parcel of an investor’s journey. Admitting a mistake as a rookie investor is okay. There is no shame to it. What is more important for us is to learn and grow from it so that we can become better at investing.

In other words, don’t waste your investment mistakes.

But here, what if you totally don’t wish to make any investment mistakes?

Well, if that’s your case, your investment options would be limited. For instance in Malaysia, there are 3 options that you can consider investing in which indeed and definitely, you won’t lose capital from it.

1. Fixed Deposits: Interest rates are low but you can uplift them without capital loss.
2. EPF: Dividends are good but you must lock in capital for the long-term.
3. ASB: Dividends are also not bad but unlike EPF, you could liquidate your ASB investments (fixed-price funds), if you need the money.