My Financial Independence Journey » Investing » Man Up and Admit Your Money Mistakes In Order to Learn and Improve
Man Up and Admit Your Money Mistakes In Order to Learn and Improve
If you’ve been investing in anything for a reasonable period of time, you’ve undoubtedly lost money somewhere along the line. I know I have. So at the risk of embarrassing myself, I thought I’d lead us on a little trip down memory lane, where I recount some of my failures and see if I learned anything along the way.
My parents were frugal, bordering on cheap. Predictably, I turned out frugal. Not cheap, just frugal. I never really enjoyed frugality, and I still don’t, but the habits are ingrained.
Since I was raised in a frugal/cheap household, I would instinctively feel bad when spending money. That bad feeling enabled me to live cheap, save money, and not go into consumer debt – all good things.
Unfortunately, I was never really educated by my parents or school system about how to actually manage finances or invest my money. And here are the seeds for what comes next.
Being the reasonably intelligent person that I am, it didn’t take long in the real world for me to figure out that I probably need to be investing my money, not just letting it pile up in a savings account. But what exactly was investing anyway – how about buying stocks, that seems to be in vogue, let’s do that. And hey, it’s a bull market, everyone’s making money. I need to get in on some of that action.
Lesson 1) In a bull market, everyone makes money. The same cannot be said for a bear market or a flat one.
Then came graduate school, where I had to spend years living on a meager stipend. No problem, I’m frugal, this is entirely doable. And since I’m so frugal, it’s not like little luxuries such as a Grande Mocha are really going make a dent in my budget.
Except that I didn’t actually have a budget. That’s right, I had no idea where my money was going. And since my income was so small at the time, even tiny expenses added up really fast. Predictably, my savings were slowly draining away.
Lesson 2) A budget is essential. I need to know what the hell is going on with my money.
Then came the Great Recession. Something like 30% of my investments evaporated. So I did what everyone else did. I panicked and pulled the rest of my money of the table. I also realized that I didn’t have a clue about personal finance or investing. Nor did I have any real goal beyond some nebulous concept of “make money.”
Lesson 3) Financial education is important and so is having an actual investment plan.
After spending several months immersing myself in the worlds of personal finance and investing, I decided to go the traditional route. I opened up an IRA and bought an index fund. When I became eligible for a 401(k) plan I got one of those and shoveled money in there – also in index funds.
Eventually, I stumbled across the idea of financial independence, and the even more remarkable idea that it’s possible to achieve it earlier than age 65. Now this was a goal that I could really get behind.
Lesson 4) If you want to achieve early financial independence, you aren’t going to do it with your money locked away in retirement accounts.
Sometime during my time as a post-doc ,I came across dividend growth investing. This was an investment style that really meshed well with my world view and my goals. It was an investment style that rewarded you for saving. The more you invested, the higher the dividend income became. So let’s get to it! Invest some money, full speed ahead!
One of my biggest blunders was during my first foray into dividend growth investing, during 2010. I bought BP during the initial price drop after the Deepwater Horizon accident. Big mistake. I underestimated the severity of the accident and thought I was being clever by buying on the dip. I wound up with a dividend growth stock that stopped it’s dividend and declined in price even further. Capital loss and dividend loss – fail on both fronts.
I sat on the stock because I didn’t want to lock in any more losses. BP resumed it’s dividend the next year. And even increased it’s dividend the year after that. The stock price is still down compared to what I paid for it. Lesson learned.
Lesson 5) There is always another stock. If you are considering buying on a dip caused by a serious problem with the company, rather than just speculatory idiocy, don’t do it. Just move on.
Later, in 2011, I initiated the high yield investment segment of my portfolio. The idea being that by allocating about 10% of my funds to riskier stocks with higher yields, I could rapidly increase the amount of invest-able cash at my disposal.
I purchased some stock in a company called Telefonica (TEF), which had a nice fat yield. It also had a lot of debt and a big exposure to a rather financially troubled Europe. TEF reduced it’s dividend. This particular company was a gamble that didn’t pay off. Fine. That’s why I had it labeled as a risky stock from the beginning. My mistake was hanging onto it after the cut. Eventually the cut became a total dividend elimination. I still hung onto it. “Maybe next year, TEF will bring back it’s dividend” I thought. Eventually, I wised up and just dropped this position all together.
Along a similar vein was my experience with Inergy (NRGY), a high yielding MLP. What seemed like a good buy at first turned into a dividend cut. I should have dropped Inergy then and there. Instead, I hung on and witnessed first hand that the management of Inergy had no real idea what the hell they were doing. Then there was another dividend cut, some company reorganization and I wound up with 3 (yes, three) shares of Suburban Propane Partners (SPH) when Inergy divested itself of it’s holdings of SPH. To be fair to SPH, I think it’s actually a descent company.
Lesson 6) Dump losers as soon as possible. If you wait, they just turn into bigger losers.
Hopefully you learned something from reading this memoir, I certainly learned a lot living it. Don’t worry, I’m sure I’ll make some more mistakes in the future. We all will, it’s just part of investing.
Disclaimer: I am long BP and SPH.
Readers: What were your biggest money management, personal finance, or investing mistakes? How did you recover? Did those mistakes have any fundamental effect on your financial or investment outlook, philosophy, or strategy?
Written by myfijourney
Filed under: Investing · Tags: investing, Reflections
29 Responses to "Man Up and Admit Your Money Mistakes In Order to Learn and Improve"
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A great read! Learning lessons along our path is so important! My one loser that I haven’t sold yet is AGF.B in Toronto. Great dividend & company (why I bought it), but down a huge amount from where I bought it. Only a small holding, but I wish I had not bought it, or sold early. I think it’s bottomed, but…
My biggest mistake with money was going to college for a semester on a credit card that I could never pay back. It took me years to repay and regain my credit score. But out of the hottest fires are forged the strongest steel, correct? I learned important lessons and am now financially knowledgeable and while not wealthy, I am not worried about my finances.
Servicekaizen,
Thanks for stopping by. I think that it’s really important that we learn from our financial mistakes. That’s why I wrote this piece. So that people would know that I’m just a normal guy. I screwed up and made mistakes in the past and have been trying to learn from them. Here’s me with egg on my face.
If you’re willing to admit your mistakes and grow from them, you’re miles ahead of the crowd, who prefers to repeat the same mistakes over and over again.
It’s not just finances either. I screw up a lot in school and in work. But every time I try to learn from my mistakes. Eventually, over time, I actually become reasonably good.
Any embarrassing stories about your parents’ cheap behavior?
My dad was eating everything while we were shopping for groceries. He would open a bag of gummy bears, eat some grapes, even have a popsicle, and then replace the open bags on the shelves. I wanted to hide and was so scared to get arrested!
A few embarrassing ones. A few that are actually kind of sad. And a lot of DIY projects that turned into yelling and anger. If the project is that stressful, it’s time to just pay the money.
I still regret wasting all the money, living paycheck to paycheck without a budget before 2009. But I did learn the lesson to let things go. I won’t bring that money back by regretting about it. I shouldn’t forget that failure so that I won’t repeat it but I have to let it go. Letting go of the losers is one thing I have difficulty with. Not just when it comes to finances, but anything. I think about the sunk costs and feel bad to not give time for it to become a success. Only, I don’t know how long it will take and all the opportunity cost I am losing by holding on to a loser. I am working on it, but its been a fight.
I burned a lot of money on junk in grad school before I got more financially savvy. When I moved, I saw how much I gave away, donated, or pawned because I didn’t want to bring it with me to my post doc. I must have lost thousands of dollars worth of stuff. If I had just not bought all that stuff in the first place, everything would have been easier.
My biggest lesson happened during the 2008-2009 period. Heavily gearing into dividend paying stocks cost me dearly (probably in excess of $50k) when the markets crashed and I needed to sell out as prices dived. Of course markets since recovered, but I learnt that buying on margin can have very bad consequences and while I still have a very modest loan in my stock portfolio (about 15%), I make sure I cap my exposure and dont exceed it.
Funny coincidence on the BP story. I also invested in BP during the Horizon period. I’m still not sure whether I came out ahead or behind during that period as I bought and sold so many times as estimates of their liability and what they would own kept going up and down. I clearly didn’t learn my lesson on that one, as I recently started a fresh position in BP again
You’re a braver man than I. Margin scares me, exactly for the reasons you described above. It’s all good, until that margin call comes in. Then you either start coughing up the money, or your brokerage starts selling your stocks.
Buying BP during the Deepwater Horizon accident was just so dumb in retrospect. But at least it’s paying a dividend and slowly-ish-kind-of getting it’s stock price back to where it was when I bought it. I really should have avoided buying that stock all together.
The reason why I started FS was b/c I needed to man up and rethink the way I invested after the 2009 crisis. Painful, but worth it. Sam
Thanks for listing your lessons. Some of them are the exact same as mine, like I was reading about my own mistakes and troubles when losing money. Many times I was refusing to admit I was wrong, convincing myself that if others could do it why not me and continued losing money. Well, hopefully I learned enough and matured. Print those lessons so you can see them before you enter a new trade. It is also good to have a blog and try to justify your trade. As for me it helps a lot to formulate my reasons for buying or selling stocks. But I do not regret my mistakes, I believe I will be able to makeup my loses and more.
Martin,
I don’t really regret my mistakes either. I do miss the money, but I think I’m learning and growing. I hope that my mistakes will be educational and encouraging. No one, certainly not me, was born a genius investor. We all make mistakes, learn and grow.
I made a lot of the same mistakes except I made more than most of my friends and still had nothing to show for it. Lesson learned.
Marissa,
Thanks for stopping by. There’s no shame in making mistakes. So long as you learned something and press on with a solid plan of saving and investing, you’ll come out ahead.
And your friends may not be telling you exactly how bad they did. Who wants to come out and say “I just lost 30% of my net worth!”
I agree when it comes to admitting your mistakes. I learned the hard way in 2007-2009 that I wasn’t good at picking stocks, nor did I have the temperament for it. I lost 11K with bad stock picking. I subsequently learned I should stick with mutual funds and my 401k plan rebalances them automatically every quarter. I have better performance and I’m a lot less stressed about it.
While I’m a big proponent of dividend growth investing, I don’t think that there’s anything wrong with the mutual fund approach. So long as you’re finding low cost index funds. If you’re saving aggressively, building income streams, growing your career, etc. you’re going to be fine.
[...] Admit Your Money Mistakes In Order To Learn and Improve Not just your money mistakes, mind you. Admission of all of your mistakes is the first step toward improving your situation. (@ my financial journey) [...]
[...] Admit Your Money Mistakes In Order To Learn and Improve Not just your money mistakes, mind you. Admission of all of your mistakes is the first step toward improving your situation. (@ my financial journey) [...]
My biggest financial mistake was avoiding investing all together when life became uncertain. My job security was in question so I kept most of my savings in cash . . . it took me three years to loose my job. Meanwhile my savings just sat there.
Elizabeth,
Thanks for stopping by. It’s entirely rational to start stockpiling cash if you think you’re going to lose your job. I doubt that you knew it would take three years for you to finally get the ax. And given how bad the job market is, it can take a very long time to get a new job.
[...] some good news for the blog, my post detailing my money mistakes was featured in the Carnival of Personal Finance #397 – Favorite Superbowl Commercials [...]
This is a great practice to get into, even though we don’t always want to since it’s admitting we were wrong. With investing especially, examining your losses will teach you much more than your winners.
JC,
I’m still a bit embarrassed by it all. Here I am trying to give saving and investing advice and I’m stuck admitting that I didn’t even know how to make a budget once. And lost money by investing with no plan.
But I think that the point is growth. The best mentors I’ve had in my education have always emphasized growth over perfection. No one can do everything correctly the first time, but everyone can learn and grow over time.
[...] awesome things happened at the end of January. First, my article on my money mistakes got published in the Carnival of Personal Finance #397. Then, the same article got mentioned in a [...]
[...] post on money mistakes got mentioned by My Personal Finance [...]
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I bought a Hilton Grand Vacation Club Timeshare.That proved to be a mistake for me,I now wish to sell it,make offer.
A few mistakes I have made in investing in stock market are:
1. Investing in penny stocks – I feel most of them are scam – I burnt my hands on a few. It was purely my greed for quick profits.
2. Remaining disengaged but attached to my stocks after investing. Not cutting down losses by exiting sooner.
3. Not educating myself constantly by reading up on articles on the internet.
The markets are very dynamic, and there are multiple forces at play. If you learn more about the stocks, bonds, interest rates, REITs, types of REITSs, what influences the markets and how, you will be able to make more informed decisions and reduce/avoid your losses.
Unless you already love this stuff or learn to love it, don’t get involved in the markets.
Some tips.
Spend 45 minutes to one hour daily on the internet. Read up on how your stocks are doing. Read up on company news and events on your stocks, and how they influence your stock prices.
If you are a beginner, don’t manage more than 4 to 6 stocks at a time until you get savvy enough to deal with more.
I don’t touch my 401k. I will leave that to professionals. If you cannot generate 6 to 8% return on your own, don’t try it.
I may be preaching to the choir and every one here may already know more, but I thought I will give my 2 cents anyways.
Some good points. I wouldn’t recommend anyone purchase individual stocks if they aren’t interested in researching companies and following them over time. And I wouldn’t recommend individual stock purchases for anyone unless they had a set of investment guidelines written up first. When I first started investing I just sort of bought stuff with no real plan. Some stocks made money, some lost money. Now I have a set of guidelines and I put in effort to researching before I buy. My investment performance has increased dramatically.
[…] (*) And much like ripping off Band-Aids, I’m still not very good at rapidly parting with losing stocks. […]