This post was originally published here.
My worst investment, in terms of stupidity, but not the biggest loss, was when I started acting on information I heard on a radio program about investing in stocks.
Past performance is no guarantee of future success
I had listened to this show and had been very lucky with my first investment; a Danish company making windmills since 1945, Vestas Wind Systems A/S (VWS:DC, VWS.DE), which no one seemed to have much faith in anymore. I had bought the stock at a share price of around 25 euro. The radio expert believed it was a goner, but I bought it as my first stock ever and sold it 1.5 years later for a share price of 300 euro! Not a bad gain at all.
One win can make an investor brim with confidence
So there I was, standing on a mountain of pride, believing that I could do much better than all the experts on Earth; the king of money, top of the heap. So the next time that the expert on the radio said don’t buy, I knew I should buy. So I went back to the radio show, heard about a stock that was very low and bought a large amount of these shares. This would teach me that I was not the king of money, not even close to top of the heap, and that I couldn’t beat the experts. Basically, I ended up losing my second investment ever. The stock was worth nothing, just like the expert had said.
Andrew’s takeaways – Avoid these mistakes to become a better investor
Only listen to experts when they’re right
The reality is that experts are hardly any better at investing than the rest of us. There are a handful that may be skilled, but these are hard to find, and you can lose a lot trying to find them. There’s nothing wrong with getting ideas from experts, but then you’ve got to do your research to support your investment thesis. But even doing that research does not assure success, which is why it’s important to write down your risk plan. What will you do if the stock goes down? At what price will you act?
Being contrarian only works sometimes
It’s quite a feeling of satisfaction when you bet against the crowd, and you’re right. Or when you bet against an individual and you are right. But don’t let the overconfidence of such an experience take you over, as no one is consistently right or consistently wrong. Okay, well maybe your ex-girlfriend or wife.
Mistakes in this story
1. Failed to do their own research
- Relied on the assumptions of others
- Inadequately researched type of investment
- Ignored a professional’s advice
2. Failed to properly assess and manage risk
- Assumed past performance would continue
Learn about the six ways you will lose your money and how to avoid them here.
DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.