As a follow-up to a recent article in The Globe and Mail, I wondered about posting another article that shares where I’ve fallen down – exposing some of my DIY investor mistakes. Here are a few common mistakes from that article and my assessment of them.
Lack of a sounding board
I’m actually using this blog, friends and family for sounding boards. I talk to others about their investing experiences (good and bad) and try to learn from everyone I meet. I think my approach is generally sound but I’m probably biased as are all DIY investors. To help remove this bias to my investing approach, I’m going to be indexing more as I get older and I may undertake a professional evaluation of my portfolio before retirement.
The article included this quote: “Everybody likes to talk about their winners, but you never hear about their losers.” Not true on this site. I enjoy the reality checks actually, they keep me honest.
Balance your life
100% agree. I spend a bit of time managing this site but barely any managing my portfolio, it’s largely on autopilot. I think I’m doing OK here.
For the most part I do, I don’t invest in volatile stocks.
Lack of a plan
I don’t have a written plan per se, so I fail here. This site is a record of my decisions and where my wife and I are planning to be. Probably not good enough though.
Failing to rebalance
The article stated “a common pitfall among do-it-yourselfers is to neglect revisiting your portfolio.” I revisit my portfolio but I do not rebalance my portfolio by selling assets. I tend to save funds where and when I can, then buy more assets (stocks and ETFs) every few months with the savings. I don’t have any bonds in my portfolio anymore.
Yes, there is lots of information that could be researched but I do very little of that – next to none now. Research is great to identify past trends and attempt to forecast the future but the reality is nobody I know can predict the future with any accuracy.
Don’t stick to one investment style
I don’t. You can check out my approach to investing here and another lazy investing approach here.
Keeping your emotions in check
I’m working on this constantly but I figure learning who you are and how you react to things is a lifelong journey. Financial stuff is just a very small part of that.
Make sure you keep your partner in the loop
I’m definitely the finance DIYer in the house but I do my best to share everything with my wife. At least if I forget something, she can always read it in my blogposts.
What DIY investing mistakes are you making? Do you know where your biases are?
This was a fantastic article. As a newer DGI, I’ve made every one of these at some point. Your first point of “lack of a sounding board” is exactly why I’ve followed so many DGI blogs, and why I just started my own a few days ago, because I don’t really have that in real life. My main weakness is the lack of a plan right now. I’ve gotten a lot better; but I seriously need to sit down and crystallize it on paper, and soon.
I look forward to reading what you write, when it comes to your plan. Congrats on launching the site! I hope you decide to follow along here.
As a newer DIY investor, I have not had the chance yet to figure out which mistakes I have been making but if anything on your list (and if not everything!) I would say lack of a plan (we have a loose one but not anything serious) would be the biggest gap.
There’s also the bias that “you don’t know what you don’t know”, so some investors (including myself) don’t know when we’re making a mistake, even if it’s happening right before our eyes. I think the key here is to learn more so you/we/I can be careful of blind spots.
My biggest mistake, and the one I had the most trouble understanding was that a good company does not necessarily mean it’s a good investment.
I would do all of my due diligence and find a good company. I would not pay much attention to the current price because it was a good company ….. WRONG!! What you pay for a stock is very important. Ultimately a good company will prevail, but your returns depend on what you paid for the stock. Many good companies become over-valued and should not be purchased at that time.
As you, the other big problem I have with investing on my own is the lack of an unbiased sounding board. I still haven’t figured this one out and have been investing on my own for over 20 years. Not to give them a plug, but 5iResearch is the beginning of help for me.
Thanks for the great comment John, and sharing. Ultimately good companies will prevail but the challenge is knowing them in advance. I guess this is why I only buy dividend paying stocks, with long-histories of rewarding shareholders and everything else is indexed. The best of both worlds I think.
5iResearch does provide high-quality unbiased information.
I only use ETF’s for foreign securities where I don’t understand the investing climate.
I strongly believe in investing in individual companies, both large and small. With an ETF you get the bad with the good. I feel I can select the top couple of stocks that most of the ETF’s invest in and save the annual fees while getting better value and avoiding the dogs of the group.
As an example, most dividend ETFs own TA, a stock I hate and would never invest in (hint, hint).
If you are not confident, don’t have the time or enjoy research, then ETFs are the way to go. As long as you don’t use a mutual fund.
I only use ETF’s for foreign securities where I don’t understand the investing climate – makes sense John.
With an ETF you get the bad with the good, such as TA. At least I have a choice with TA (got the hint…:) I might sell later this year to offset some capital gains.
My biggest mistake, was not becoming a DIY investor earlier in my life… Now to your points:
Lack of a Sounding Board: I honestly do what I feel comfortable with. My wife is my sounding board. We learn by falling down sometimes. I mean what others think about what I do with my money is really irrelevant. I know what I need to live on and so I let that dictate how I invest and spend…
Being irrational: That’s a matter of opinion… I believe I’m quite rational, want to contradict me for MY situation, good luck with that.
Balance your life: Absolutely, Investing is only a small part of the life equation
Understand risk: Yep risk and reward are on a connected scale. Knowledge and experience can reduce some of the risk, so yep always understand risk… Volatility has very little to do with risk though, in my opinion. Risk has to do with macro trends and volatility has to do with micro trends… think about it.
Lack of a plan: Our plan is to live a happy life, and well we’re doing that, so that one’s covered. More money might actually make life more complicated, so the plan is to have just a little more than we need…
Failing to rebalance: This is a large part of the DIY philosophy. As a DIYer you need to know what works and doesn’t for your life situation, and sometimes changing tactics will be required to achieve follow the plan… if you don’t require investment income, focus on growth, and as you require income, slowly shift investments to income producing holdings… Simple, no?
Understand research: Research is only as good as the information you can extrapolate from it. It is more important to have the smarts to know what you are looking at and the gut to know that to execute your plan you need to do what’s right for your situation. Information is great, but if you do not know how to process it for your situation to achieve your goals, it is useless.
Don’t stick to one investment style: See “balance your life”
Keeping your emotions in check: Nope. Better to know your emotions and how they work and leverage them to accomplish your goals. Foe me investing is 2 prong, enjoyment, which is emotional, and a necessity 9to reach my goal with needs to be mathematical. It is important as DIYer to know your weaknesses so that you can set up the plan of action to counter those weaknesses at first and slowly as you learn, rebalance to leverage those weaknesses.
Make sure you keep your partner in the loop: Absolutely, and I will also add that you should include other family members to so they learn early about how they can learn too. I love it when my son comes in and says ” Daddy, my friends are interested in this… Do you know if we own shares in the company that is doing this? , because if we don’t maybe you should look them up… ”
Life is beautiful, make the most of it and take control of your own destiny.
I have nothing more to add Phil; “our plan is to live a happy life, and well we’re doing that, so that one’s covered. More money might actually make life more complicated, so the plan is to have just a little more than we need…”
Sounds awesome. Great comment.
Great points. Talking about the strategy is important, what’s why I have a blog and I talk to my wife about our strategy quite regularly. I’ve been thinking more and more about putting more capitals into index funds.
Talking about both the winners and losers is important.
I enjoy your blog and hope to visit it more. As I get older, I’ll be indexing more. Just makes so much sense.
“I’m working on this constantly but I figure learning who you are and how you react to things is a lifelong journey. Financial stuff is just a very small part of that.”
Couldn’t agree more, one thing I have learnt about life is that it can change completely in a matter of seconds. Its good to plan for the future but you gotta live for the present.
Absolutely, life can change fast…the future is good to plan for but 110% agree: live for today. We absolutely do. Thanks for the comment Digger.
great article mark! i totally agree with your first point — having people to bounce strategy and ideas off of. that is why i love reading your blog. ( and few others as well ). i should probably have an advisor to let me know how i’m doing but i’m cheap! one of your other points is to gradually move from individual stocks to etf’s. i have been thinking about doing that as well.
Thanks Gary! I will probably continue to hold the stocks I have, for decades, but I figure after 20-30 blue-chip investments, the best way to get cheap diversification is via ETFs. I will probably always hold 30 or so stocks non-registered, but in my registered accounts, I see myself buying more broad-market ETFs and just not worrying about what the market returns, since I’m along for the ride. 😉
The biggest mistake some people make (including myself) is a biased towards Canadian investments. We all know them better and are more familiar with them the best but there are so many other investment opportunities out there that people don’t see because they stick only to what they constantly hear about in their own local (ie. national) media
Agree with you in so much as we should be looking at the world maket and not jsut Canadian stocks.
But Can stocks are 1) less expensive usually to purchase and 2) Pay more yield than many others.
I have a hard time justifying buying a US stock at $100 (US plus 10% exchange) than buying five Can stocks at $20 and being more diversified. Even if the yield is similar I feel that a $20 stock has better potential for a capital gain of 10% ($2) than a stock of $100 ($10).
But that is my own logic. I’ll bet that five stocks will make me 10% overall than one stock will
Interesting comment and logic: buying a US stock at $100 (US plus 10% exchange) than buying five Can stocks at $20 and being more diversified. Good way to think of closing a very important investor need: diversification.
I have too much CDN bias, I need more U.S. and international companies and ETFs. That’s the plan in 2015 after things correct 🙂 That should happen eventually right?
@Dan, agreed on that. Personally I only hold Canadian companies at the moment while I max out my TFSA. Once thats completed it will be a non-registered account or perhaps an RRSP for US equities and foreign market ETFs.
My approach seems similar Wisp – CDN stocks and ETFs inside TFSA; US stocks and ETFs, and only a few CDN stocks inside RRSP.
Thats the sort of thing I dont like with the GM/NP. Their articles tend to be so very full of just generic advice, or in the FP’s case when they do ‘client’ profiles it is pretty much always a couple of high earners who make poor investment/spending decisions.
And I find most investing blogs are pretty good with showing mistakes when they happen. Personally I made a mistake when I put a non-TFSA qualified stock into my TFSA when it should have gone into an RRSP -_- Woops Luckily it broke even though, it certainly could have been a costly mistake though. And since my TFSA most likely wont be maxed anytime soon the contribution room loss isnt an issue 🙂
Thanks for the comment Wisp. I think the G&M and NP would be better off getting into more specifics with folks in their articles, but that’s just me. I’m not a professional writer or editor, so maybe I don’t know any better 🙂
I don’t mind sharing my mistakes. I think folks that say they don’t make investing mistakes are definitely fooling themselves, nobody is perfect, and the reality is, there is no perfect portfolio.
I talk more about my big losers than my winners 🙂 not a problem.
Understand research? Why? I learnt in my MBA that the current price reflect everything that is known… So is the P/E is at 10x, I assume that there is a research somewhere telling that the future profits will be less than current one, same logic for P/E of 35. I more interested in long term and basic analysis like Amazon is a great business and they will probably kill half of the business in USA but they are not making money now… So I invest in UPS, Fedex… That are making money immediately.
I can’t be bothered researching many companies. I don’t have the time or interest. I 100% agree the current price tells you everything you need to know, no one person is smarter than the market, the current price is the best price available. I like your call in shipping companies…with more stuff going online, there will always be a need (like an increasing need) to ship products and store stuff. “Stuff” needs infrastructure.
I am pretty similar to your responses except one. My wife is not informed. She has zero interest in investing no matter how much I bring it up. She makes me turn off the business news BNN evrytime its on saying it gives her a headache. lol. U cant win em all!
Ha. Well, my wife reads my posts, she has some interest in this stuff for sure but I doubt very much she’d watch BNN! Thanks for the comment!