Share your big fat investing mistakes
I’ve written this before on my site but it’s worth repeating: you usually don’t succeed in life without falling down flat on your face a few times. I recall Winston Churchill coined this phrase:
“Success consists of going from failure to failure without loss of enthusiasm.”
Ha.
When it comes to investing, you’re going to make a few mistakes and you’ll probably start losing your enthusiasm in the process. Don’t. Nobody is perfect.
I’ve made a number of financial screw-ups over the years and I’d like to think I’ve learned from all of them. Part of the reason why I run this blog is to chronicle those mistakes to help me avoid making similar ones in the future. Hopefully by sharing my mistakes I’m helping you too. Let’s revisit some of my blunders.
- I bought TransAlta
I owned this company in the early years of my investing career and got burned. I chased some yield in the process.
- I bought mortgage life insurance
You can read this post here why this is a bad financial product, for me, for you, the consumer, but a great one for the financial lending company. My suggestion is not to buy mortgage life insurance, get permanent or term life insurance instead.
There is an excellent overview about Life Insurance 101 here.
- I bought penny stocks
You really can’t make a bigger dumbass financial move than trading penny stocks. Or maybe you can….see #4.
- I invested in high-priced mutual funds
Sigh. I used to pay high money management fees to own products that underperformed the stock market. Not anymore. Don’t make this same mistake.
- I used to tinker with my portfolio
As a novice investor I was very guilty of chasing hot-performing products. So, in my 20s, not only did I pay sizeable money management fees for those mutual funds above but I also chased the performance of those funds. Fund studs often turned into fund duds very quickly. Over the past few years I’ve learned to train my investing brain.
Those are five big financial failures (and I have more than these).
I’ve lost thousands when it comes to investing – but thankfully I’ve also made some great decisions too.
Now it’s your turn. I want you to share your mistakes with me and others.
You have something to gain from this other than reminding yourself not to make the same mistake twice and helping other investors who read this site – by sharing your big fat investing mistakes, thanks to my partnership with 5i Research, I will giveaway one (1) 5i one-year subscription to their conflict free investing research, a $150 value to one lucky reader (contest over). Feel free to enter my giveaway below and I’ll contact the winner via email after it closes.
In the end, by learning lessons, hopefully we only make some mistakes (including our financial ones) once in life. From the words of Dale Carnegie:
“Discouragement and failure are two of the surest stepping stones to success.”
Keep stepping your way forward folks.
Worst mistake and I have made and I have done it twice, is jumping in on the hot stock everyone if the office is making money on and taking about. In the most recent case POT stocks. One in particular was soaring and I bought on the way up only to have it come back down to earth with a loss of 75% of my investment. To top it off it was in my TFSA. The worst place to lose money as I cannot write off the loss and I lose valuable tax free $$ to invest and grow. With the two losses since inception I have Zero returns after 10 years of TFSA investing. Never try to play catch up after and initial loss with a risky investment.
POT stocks are the current story aren’t they? There is always some fad or trend that are “hot stocks”. I try to avoid them myself but I’m not immune to the odd bad decision still. I’m learning and growing though!
Thanks for your comment Rick.
In Spring of 1987 when I was in my early 20’s and had been saving for a few years, I decided to start investing. Talked with some older friends from work, they pointed me to a friend who was an “advisor” (actually, a mutual fund salesman). Was smooth talked into not only investing my life savings ($5000), but LEVERAGING it as well up to 3x (i.e. borrowing $10K for a total of $15K), on a … (wait for it) … FRONT LOADED (9%) mutual fund. Remember – spring of 1987 – six months before Black Monday. I lost 60-80%. But it kind of climbed back up again over the next 18 months – I can’t remember exactly where I ended up when I sold. It was a loss, but not so bad… maybe only 20%.
At the time it was devastating but I look back on it and figure it was a fantastic education for only $3K.
I learned:
– don’t leverage
– don’t trust financial professionals
– don’t panic after a loss, you only realize the loss when you sell
– don’t put all your eggs in one basket
– keep a rainy day fund (I did! I didn’t invest everything.)
– don’t take investment tips from “friends at work” (actually, took me several more blunders before this sunk in, but I should have learned it the first time)
– if something sounds too good to be true (i.e. leveraging), it is too good to be true
Yep… I’ve had lots of blunders since, but never due to being quite so completely clueless. And this one has a special place in my heart, being the first 🙂
I’ve had similar “education” experiences. The most recent being buying a penny stock about 8 years ago. I don’t do that anymore. The stock is down about -97% since I bought it. I keep it in my portfolio as a reminder of my stupidity (and to never do it again).
Leveraged investing can be quite harmful to your financial health. Financial “tips” are just as bad. Except the one that tips you to say:
-Live below your means
-Max out your RRSP and TFSA with low-cost index funds
-Rinse and repeat for 30 years.
Cheers!
I’ve done some of the same mistakes, the most costly ones were definitely penny stocks.
I also chased returns and fiddled with my portfolio too much. The commission fees and constant small win/losses ended up costing me.
I’m trying to break that habit and setup a good portfolio that will not need fiddling.
My penny stocks were horrible. I’ve kept one in my account as a reminder to never invest in those things again.
Lots of commissions and fees hurt as well. I try to keep transaction costs <1%. Good luck with your investments Jon.
Bought a reverse Chinese merger, on the TSX, before I learn what is a reverse Chinese merger and well before my current valuation model was what it is now.
It did canned products and displayed a growth like 16/18% by years… with canned products…
I lost 40% in the process, but it was not so bad because I gone out before IIROC stop any trade… indefinitely
———–
Bought a thrid party stock in Alberta without respecting the very basic points to check from B. Graham (like to have a certain data history), and again well before the current version of my valuation model. The company made water tanks for Oil companies, and… that’s all.
In the end, the management was shaddy at best and I lost about 60% , same scenario I came out before IIROC strike the Game Over hammer. They have been lawsuits, but hey, I passed to something else since.
A reverse Chinese merger? I have no idea what that is 🙂
Doesn’t sound good…like a virus or something.
Those are two good lessons. Based on your comments on this site it looks like you’ve learned those lessons well.
“Doesn’t sound good…like a virus or something.”
I just ROFL behind the screen, because yeah, it is a good description.
In brief, Chinese companies need to do what we call a reverse merging to be able to be listed on to exchanges like in the US and here in Canada. From what I know it is due to the economical and political context and laws, and it is a mean to avoid IPO.
These kind of companies doesn’t means that there are all shadowy and toxic companies, but most of the case something is wrong.
This lesson cost me about $400, that could be worse.
Good link about the process, better said than what I wrote; https://en.wikipedia.org/wiki/Reverse_takeover
Glad that made you laugh!
OK, that makes sense, re: to avoid IPO. Thanks for the link, I learn something every day!
I did 1, 2, 4 and 5 off your list.
– Bought Nortel and whole bunch of tech stocks in late 1990’s which all went to zero.
– Delved into high MER, star mutual funds, then realized they skim all profits above 20%.
– Started buying individual dividend stocks late (~2007)
– Other mistakes: value traps Manulife, Pfizer.
My saving grace is that most of my investments for the last 8 years have been stable and profitable (Canadian banks, utilities, telecoms, REITs, US consumer staple…). I was also lucky my real estate investment (rental) did not tank.
That’s just the start of my list! I figure live and learn WebsterData….
We’ve been on a big bull run for the last 6 years. It will be interesting to see what the next six years brings. Kudos to you on the RE rental, that’s good news. Thanks for reading and commenting.
Let’s just say I had some insight and leave it at that.
Well done 🙂
Yes, company stock is a potentially dangerous one, especially if company fundamentals and portfolio diversification aren’t seriously considered. I stayed away from it in the next 3 public companies I worked for.
I could also mention the 60% haircut I took with Nortel although luckily it wasn’t a big holding.
Fortunately my 2 penny stock stories were very good ones. The most profitable trades I ever made by far- 1 approx 10 bagger in about a week and a 5+ bagger in a couple of days, and I bet a fair bit on both. Fortunately I stayed away from more gambling while I was ahead.
Mark, if you get burned with your 30 CDN dividend payers most all of us indexers will also get burned on the CDN side. Right now it seems there’s no where to hide. All part of the natural cycle though.
You’re one of the few people I know who did well on penny stocks. Mine bombed and I’ve been done with that for many years now RBull.
Yeah, if the biggest 30 CDN stocks go under, indexers and dividend investors alike are in some trouble!
I think my biggest mistake was to involve my mom in a risky action saying she would make great profit out of it… but was wrong! I felt so bad to making her loose money. Shortly after, I discovered Dividend Growth Investing and my comfort towards my investing got much better! 😉
Cheers,
Mike
I think you’ve done very well since then Mike. All the best.
My biggest mistake was investing in Manitoba’s CROCUS labour sponsored fund. I did not think that the governments would allow, never mind participate in, such corruption but boy was I wrong. Followed that up with an investment in Arctic Glacier which was decimated by, you guessed it, more corruption. Swore off Manitoba companies after that.
I don’t know too much about labour sponsored funds to be honest. I guess that’s a good thing? I know the essence but that’s about it. The idea of having my money locked-up based on a contract doesn’t seem very appealing to me.
Again, I have a longer list of mistakes that you Lloyd…thanks for sharing.
Where do I start with this one?
One of my bigger mistakes was hanging on to company stock too long and continued buying trying to average down. At least I had the benefit of a 33% contribution from the company but rode the stock down to about ~$3.50 from a high of ~$11.00 and an avg cost of ~$8.00 over 5yrs or so. The stock continued down to ~$1.00 where it languished for years, so the bright side (if there is one) is I didn’t get completely pounded by it.
I now understand why the chairman was so adamant that the DC pension plan did not offer any company stock, as an investment choice.
Geez, that’s quite the story. Everyone has a “burn” story I think. More often than not it’s company stock. I’ve heard a few horror stories about Nortel over the years. Terrible really.
Potentially if I don’t index more I might get burned. Time will tell if my approach to “living off dividends” will work out. I’m optimistic with 30+ holdings but you never know. Thanks for sharing.
Biggest mistake is easy. When I first started investing around 1997 I bough some penny stock shares through a company called a.c. macpherson. They had a little business going ripping off their customers.
http://www.theglobeandmail.com/report-on-business/end-near-for-penny-stock-abuses/article767367/
Unfortunately I was keen to invest with little knowledge and experience.
My other mistakes….still liked penny stocks after that, some did well most didn’t. Now its not looking for the greedy returns and getting out at the right time (PWT) Rode it up and down…lol. Seems that I’ve bought my experience so far..lol.
Love your page Mark and the pages you highlight.
Thanks,
Rob.
Thanks for sharing Rob. I still own a penny stock as a reminder to the pain and suffering I caused myself in the past, to never do it again!
Which mistake should I mention? My five digit dot.com blunder. I was somewhat involved in the company but the PHD nobs couldn’t get their technology out in time. Then of course there was holding onto and dollar cost averaging RIM now BB. And other penny stock debacles. I remember a buddy coming into my office and showing this new search engine called Google. I did invest some time later and made bucks but why sell something everybody used every day? Warren is that you talking? And a few weeks ago I decided to finally heed the media reports of a blood bath and I sold my Apple after it had been crashing. Dummy. I suck at investing. Don’t know when to buy or sell. There, I feel better.
“There, I feel better.” That made me laugh Al.
We’ve all been there and folks that don’t admit mistakes are either too full of themselves or liars. 🙂
You win and you lose, but to be honest, long-term the success goes to those who invest mostly in indexed products and simply never sell.
What’s your investing plan now? Curious.
Thanks for reading.
Mark
I held onto my Employer’s stock for way too long and paid dearly (Nortel)
– If your employer gives you stock remember you are already heavily invested in them, in terms of income, so you should not be too reliant on them for all your income needs.
Bought Whole Life Insurance when I was 25 ?
– Slick sales person (and I was an idiot)
etc., etc.,
Good lesson about Nortel. I didn’t work there but it’s a good reminder to me should my job change, not to be vested too much in the organization’s stock. Diversify outside the company. Thanks for sharing BCM.
Probably our earliest mistake was to do easy investing – buying Bank mutual funds without doing any real research or comparison shopping. It started our portfolio, but with not very magical returns and high fees.
In recent years, we have lost a chunk of what I consider my play money by investing (OK uneducated speculation) in very high dividend stocks then not selling at the first sign of trouble.
Nowadays, most of our money follows mainstream dividends with a fair chunk now being moved into bonds with staggered maturity dates (I am retired, we don’t need the risk that comes from chasing high returns).
I’m not retired yet Richard, but I feel the same way: “we don’t need the risk that comes from chasing high returns.” I’m now becoming more happy and used to lower dividend yields, higher dividend growth rates and capital appreciation that comes with some low-cost diversified ETFs. I won’t be an indexer anytime soon but I see the merits now much clearer than before.
My biggest mistake (thus far, I’m 22, lots of time to make plenty more mistakes) is “changing” my investing strategy. I started out doing the savings accounts/GICs, then (about a year) realized if I want any kind of return, I need to get some equities. So turned to a balanced fund. Stayed in that not quite a full year, learnt more about investing and myself and wanted 100% equities – reason being I’m very young and retirement funds have a very long time to ride out any lows. That lasted about about 6-12 months again and now I’m doing individual dividend stocks (at the moment, banks) with (soon) 100% equity EFTs. That way I can own a broad spectrum of companies, but have my “safe” bank stocks that can pay me every quarter. (Right now dividends are reinvested, eventually they’ll replace some income – but that’s years and years from now!)
I say that’s my biggest mistake because while I don’t feel that I am chasing “hot” funds/stocks, and have always sold whatever I was invested in at a profit, I know by not just sticking with something and always moving around, I’m missing out on big opportunities. But, I think my current strategy is the one I’m going to keep. Many many years from now, I’ll slowly be selling equities for fixed income (nearing retirement), but right now I got the time in the world to ride out any downtowns.
I think sticking to a plan is very key when it comes to investing. The entire industry is rigged against you (and I) to chase fads. By simply letting time in the market be your friend you will be successful – history has demonstrated that via index investing. Thanks for sharing Tom.
Uggg not doing your ACB!!!!
Slowing going through 3 years worth of statements. It’s actually quite interesting reviewing all the trades I’ve made, and it’s also confirmed that I want to be mostly a buy and hold investor. I’m very happy to have Adjustedcostbase.ca to enter everything. I haven’t been able to find a spread sheet that as good of job ACB does!
http://www.adjustedcostbase.ca is excellent! Great tip and good lesson as well Rob. How is your investing going? Got any tips for investing as a Canadian expat to share? I’d like to write a post on that. Maybe you can drop me an email?
My biggest investing mistake was NOT investing when I was younger. I did the usual thing young adults do and I pretty much drank and partied away that money.
Now I know better, but I still do stupid things like buying some penny stocks. The next mistake I’ll make (because I know I will) is trying my hand at options and probably losing 😛
Well, I started fairly young but wasted lots of money on fees which wasn’t good. I also partied away lots of money. Those days made me who I am today, no regrets!
I thought I could do without mortgage broker.
You probably can, but I did not know what a colateral charge is.
Now I have one, and am tied more to my ‘ing unmortgage’ than I had to be.
I should have gone with a professional broker.
That’s a good lesson as well Bram. The thing is, we don’t know what we don’t know. It’s hard to figure all this stuff out…sometimes by learning lessons is the only way how.
Years ago (35 or more) a friend of mine invested in a stock that was supposed to be an up and coming stock. I invested also…as they say follow the leader. Watched that stock diligently as it faded to nothing…I think it was a whale bone stock (just kidding). I can’t even remember the name but have visions of it now being worth millions. What a dream. I learned my lesson.
I don’t follow anyone’s lead any longer. I mean, if they want to tip me fine but nothing is guaranteed and I’d rather follow my own path than others. So far, our plan is working and that’s the mean thing. Thanks for sharing.
re: “I lost money on penny stocks so never again. Once burned I’m not going back.”
Hence the lesson, know exactly what you are buying and WHY. In another post you stated you bought pennies with a long-term buy-and-hold capital appreciation strategy in mind, whereas my strategy was to trade pennies simply to access the higher volatility. You were buying the company, I was trading the volatility.
Buying and holding pennies rarely pays out, but I also would not repeat my flipping strategy at this point in my financial journey.
So, agreed — don’t buy penny stocks!
Agreed, “know exactly what you are buying and WHY.”
I wasn’t very good at this in my 20s. I got a bit smarter in my 30s. Now in my early 40s our financial plan is very boring but I’ve learned boring is great when it comes to investing. No more penny stocks for me, regardless what the next big thing is.
1. Cashed in our RRSP’s to buy a cottage. Sold the cottage 6 years later and put in a pool. Value of house stayed the same, maybe even lower.
2. Started over in my early 40’s — much too late!
All you people in your 20’s — START NOW — even $5 a week will grow and grow and grow!
Ouch Gary but you know, you don’t live a bit unless you make mistakes. I think people who state they don’t make any money mistakes or other mistakes in life are fooling themselves. Life is full of them really 🙂 Thanks for sharing.
Biggest investing mistake was also my biggest lesson.
My first foray into private equity maybe 10 years ago or so. I met with the owner of the company and within 10 minutes he said something which, had either of us been truly listening, would have made both of us pull our money out of the operation. But we, and all the other investors, were both blinded by…well, a lot of things. I lost 100% of my money, $15,000. The proprietor went bankrupt, lost his house, a bunch of friends, and got divorced. Ouch. It wasn’t fraud or anything, just a very poorly timed venture.
Lesson learned: know exactly what you are buying and why; read, research, ask questions, listen, ponder, proceed with non-emotion based decisions.
Now to take an opposing view, because that’s what I do 😉 …
re: “You really can’t make a bigger dumbass financial move than trading penny stocks.”
Disagree. I developed a system to trade/churn pennies during the mid-90s and was very profitable. Howver, once I was done with that I realized it was a matter of rising tides lifting all boats and not strictly my “genius” which resulted in success. Pennies are no more or less manipulated than any other stock/company (e.g. Valeant).
Lesson learned: you have complete control of when and what you put in, but have far less control of what you get out; you are luckier in the markets than you are skilled and/or talented.
Ouch. That’s a very good lesson.
Well I lost money on penny stocks so never again. Once burned I’m not going back. Dividend stocks or indexed products only going-forward, keeping it simple. Thanks for sharing SST.
I am in the middle of my big investing mistake:: paralysis! I haven’t really started investing yet at all, due partly to fear of trying to figure out what the heck I am supposed to do as a Canadian who had the unfortunate circumstance of being born in the US. I know it makes investing/taxes tough for me, but I don’t know what the right approach is. So I haven’t started.
Understand, simular issue here. canadian living in Germany. A good starting point would be reading Andrew Hallan’s book Millionaire Teacher, given away many copies and everybody has enjoyed it
Thanks for that advice Rob.
Hey Andrew, don’t be paralyzed, you know this I’m sure but a short conversation with a tax accountant could help!? The second best time to plant a tree is now. Thanks for reading.
I held foreign shares in my TFSA.
Not the end of the world Leslie, although as you know not as tax-efficient to do that. There are worse mistakes for sure. Thanks for sharing.