Last week was my 10 year anniversary as a Stock investor. That means I have been managing my own personal portfolio of investments for a decade (and counting).
I’ve been celebrating (mostly in my head) all month. I couldn’t let July 2018 pass by without sharing the top ten investing lessons I have learned over the past 10 years! I shared a similar post last year for my 9th anniversary but a decade is kind of a big deal (in my head) and so, here we are.
A little background story – you can check out my full story here but the short story is that I found out about investing for the first time the fall of 2004 – a semester before I graduated from college. This incredible “discovery” completely shifted my perspective on what is truly possible when it comes to building wealth. I immediately made sure my degree included a finance concentration. I graduated with a bachelor of science in business and Finance.
Regardless of taking multiple finance courses, and regardless of my “book” knowledge on the subject, hands on investing still seemed overly complex.
It wasn’t until a good friend of mine sat down with me and walked me through the step by step process of buying a Stock and tracking a personal portfolio that things began to click. That was back in the summer of 2008 and 10 years later I can affirm, without a doubt, that learning to invest has been one of the best skills I’ve acquired in my life to date.
learning to invest has been one of the best skills I’ve acquired in my life to date.
The awesome thing is that the learning never ends and I continue acquiring amazing lessons as time goes by.
In this post I get to share 10 what I consider to be the best lessons so far. And here we go:
#1 Patience can be the most difficult skill to learn as an investor but it can also be the most rewarding.
When you put your money in amazing companies being patient with business cycles and random stock fluctuations can pay off tremendously over time.
And by the way – The keyword here is amazing companies. If you are putting your money in junk (ie: Penny stocks, the latest fad, a random obscure business that might be part of a pump and dump scheme) being patient doesn’t make a difference. I cannot speak for that as I don’t invest in those kinds of things.
#2 Some of the riskiest stocks to invest in include retail and companies that have one single source of income and a lot of competition.
The retail industry is a tough one to invest in because customers are fickle and often change their mind about brands, the prices they want to pay, where they want to shop, and the list goes on. For that reason, most (not all) retail companies are struggling today. Specially brick and mortar. Be cautious with companies in that realm. There is just a handful of companies from that industry that I consider “safe”.
Another risky type of stocks to invest in involve companies that rely on one single way to make money yet have other competitors doing the exact same thing – not only better but ALSO by offering other services to consumers.
I strongly believe that diversification is not only important for your portfolio but also for individual businesses. The type of businesses that comes to mind when I think of ‘single source of income’ are music streaming business or those meal kit services that send you ingredients. Be cautious with those as well. Can you think of other examples?
# 3 The best time to go on a shopping spree in the markets is when most are fearful.
About 3 months after I opened my online brokerage account and bought my very first stock the market crashed. It wasn’t a short lived crash that lasted a few days. It was the financial bubble of 2008 where several major companies, some that had been around for almost a hundred years, went bankrupt and the world seemed like it was going to fall apart.
Instead of becoming fearful about the markets during such scary times I actually became very excited and learned this lesson very early on:
“Be fearful when others are greedy and greedy only when others are fearful.”
– Warren Buffett
The timing couldn’s have been more perfect.
Like a normal human being I can’t deny I do get a little nervous when there is turnmoil in the markets but this past decade (and about 100 years of data) have shown me that the market ALWAYS recovers regardless of how dark it gets. This is something I try to keep at the forefront of my mind when I am questioning whether or not to take advantage of “sales” when they come.
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
Many people want to jump into the markets and do all kinds of crazy things when everything is going well but then hide when everything is falling apart. How effective do you think that is?
#4 Learn to look at investing as if you are buying an actual company not just a “stock”.
Some people get into investing with the idea they’ll make thousands of dollars overnight and all they see is the ticker symbol not realizing there is an actual business behind the stock that should be researched and analyzed in order to make an educated investing decision. Failing to do your homework can cause you a lot of stress and money.
Learning to look at investing as if you are buying an actual business will do two things: 1. Protect you from putting your hard earned money in junk, and 2. Keep you interested in the stuff you add to your portfolio. The reasons for buying something will go well beyond “I just want to make a quick buck.”
When it comes to investing either we make money or we learn valuable lessons. Is a win win.
When it comes to investing either we make money or we learn valuable lessons. Is a win win.
#5 If your CORE reason for why you bought a stock changes or if you realize you had the story all wrong – is okay to let go!
Not sure where I heard this a long time ago but it made perfect sense to me:
“We invest to MAKE MONEY not to be RIGHT.”
In other words, mistakes happen and is better to admit to yourself that you made an erroneous investing decision and move on. Sometimes our ego gets in the way of our profits and this is something we can all get better at. As with everything, this is something that gets better with time.
#6 The core characteristics of my best investments can be summed up into five types:
1. Companies that have a proven track record of profitability.
2. Are unique in the products/services they offer or have very few competitors.
3. The business model/ way in which the company generates revenue makes perfect sense.
4. Strong brand names that are often internationally recognized and/or have a strong “cult-like” following among consumers.
5. Have strategies for the future that are clear and make sense.
#7 Understanding what to buy is just as important as knowing what to avoid.
Staying away from what I consider junk (ie: penny stocks), speculation, the “latest fad” has paid great dividends towards my peace of mind as an investor and has saved me a whole lot of money and headaches.
#8 When it comes to the things you’re passionate about / interested in – learn from the BEST people you can find.
Investing is a topic I consider too serious and too important to learn it from just anyone. For that reason – I have made it my mission to seek individuals that I consider to be creme of the crop in the investing world. I then make it my mission to share what I learn with others.
Here are some of the people I consider my investing mentors whether they know it or not: Warren Buffett, Peter Lynch, Benjamin Graham, John Bogle, Julie Stav, David Gardner, Tom Gardner, John Templeton, Charlie Munger, and Joel Greenblatt just to name a few.
#9 Pay attention to your watch list and follow through on your plans.
I have a watchlist where I keep track of “wish list” companies or companies I would love to buy if I ever catch them “on sale”. There has been times where I have witnessed a random downturn in the markets (which I know is temporary) and yet I have failed to take advantage. Those are not very good days.
The best days are those when I actually follow through on what I said I was going to do and I actually add to my holdings when I said I was going to add. One of the worst feelings is witnessing the price of a stock you told yourself you would buy much higher than where you last saw it simply because you forgot to buy it or decided to just wait. Speaking from experience. This is still a work in progress 🙂
#10 Adding to winners is scary but it can be one of the most rewarding strategies.
I have mentioned this before but I would say that one of the best investing lesson I have learned thus far in the year 2018 is adding to winners. It might sound like a “scary” proposition.
For example, let’s say you bought a stock at $150 and then you see it run up to $300 and know you should buy more of it but it just doesn’t feel right. And then the stock goes up to $500. Yikes! This actually happens (with GOOD companies – not junk) and is a great feeling when you buy high and it keeps on going higher. Such an eye opening lesson that I want to be strategic about but implement more often. Taking baby steps.
And that’s all folks. Hope you enjoyed this post and let me know in the comments if you have any questions.
Also, if you are currently investing – whether you started 2 hours ago or 20 years ago – I’d love to know what is the best lesson you’ve learned so far. Share below!
Until next time! Cheers to profits.
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