5 Painful Mistakes I Made In my 20’s In the Stock Market. And How To Avoid Them
#3: Thinking I could beat the index
The key to financial independence is to start early.
But during my 20’s I didn’t fully realize it. I thought “OK… gotta save more now.”, but didn’t really apply that to my life until my late 20’s.
I realized I wouldn’t be young forever.
You’ll probably (definitely) make mistakes. It’s almost impossible to skip the learning curve. And you can only drill lessons into your brains when the mistakes hurt.
The good thing is that the stakes are not that high. You can lose a few thousands here and there. But as you get older, it can wipe you out.
And after years of playing in the stock market, I realized that I didn’t have the right mindset. Here’s what I learned.
#1: Reading about companies after I invested in them
Watching the news only makes you paranoid.
I already wrote about why following the news is useless. But when it comes to investments, it’s worse. It’s impossible to be rational when all you read is that the company is going bust, or consumers are spending less, or a new financial crisis is coming.
The news thrives off negativity. It’s what makes people click headlines.
This mistake cost me a lot of money. I was addicted to the news. I couldn’t stop myself from refreshing investment websites. And with every new article that came out, I was sure that I had made a mistake by buying X and not Y. And then I’d sell my position at a loss, only to invest in the next new cool thing. For no good reason.
Most of the news won’t matter in the future. It’s all noise.
#2: Checking stock prices every day. And bragging about it.
You don’t plant a seed and go check it every single day to see if it grew.
Same goes for stocks you own. Grabbing your phone every 5 minutes to check stock prices is nerve-wrecking. It will only make you more anxious and feel like crap all the time.
I used to check the prices every day. Worst of all, I used to tell everyone when a stock I owned was up 10%. And I used to be quiet when it was down 15%. I was addicted to showing off to people how great I was at investing.
Spoiler: I lost more than I invested.
Buy and forget. Stocks take time to go up.
#3: Thinking I could beat the index
Some companies can beat the index, the majority can’t.
And for individual investors, it’s even worse. We see recommendations everywhere about the next Amazon’s and Google’s. It’s all very appealing and seductive.
Index funds? BORING! I want the next cool thing!
I used to think I was special, that I could beat it. But the market taught me a lesson. Even monkeys can beat it but I can’t.
Nowadays I stick with Index Funds. Gives me internal peace.
But I occasionally invest in individual companies… I’m only human.
#4: Invest for short term gains
Short-term investing is the surest way to lose money.
It’s a casino. You’re betting that the stock will move the way you want in a short period of time.
Forget that.
Stock market is a marathon, not a sprint.
#5: Having no spare cash
the purpose of the margin of safety is to render the forecast unnecessary.
— Benjamin Graham
You can’t predict the future. So, don’t make a mistake that can make you bankrupt. This is very important.
It’s great to have spare cash in a bear market, so you can buy companies at a cheaper price. But it’s even better when you don’t have to sell your portfolio for pennies because of an emergency.
I used to think that spare cash was a waste of money. I thought investing all I had was the way to go. But then I started having unexpected expenses when I moved to another country.
What happened?
I had to sell when the price was (really) down.
Keep some of your money free. When an opportunity comes, use it wisely.
Don’t wait years to fix these mistakes. They can cost you a lot of money.
This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.