Everyone likes talking about their personal highlight reel, right? Isn’t that why social media exists? In Monday’s post, I wrote about the parallels between investing and running the Boston Marathon, which was a dream come true to qualify for and run. While the parallels to investing were invaluable, who doesn’t love talking about the best moments of their lives?
It’s natural to revel in our triumphs, but today, I’m switching gears to keep it authentic to my biggest investing mistakes. After all, authenticity is the soil for growth and learning. Before the glory of running the Boston Marathon, there was a relentless pursuit to qualify.
During my first half marathon after hiring a running coach, I was aiming for a good time to quiet the self-doubt I felt inside about climbing my personal Everest. But instead, in the final stretch, I hit a wall – literally. Overcome by heat and exhaustion, my legs locked up and I couldn’t walk. I needed medical assistance to cross the finish line. I was angry, ashamed, demoralized, and embarrassed. You name it, I felt it. To make things worse, it only amplified my inner critic that fat kids can’t qualify for the Boston Marathon. This picture still makes my blood boil!
Sharing failures isn’t glamorous. It’s the antithesis of your personal highlight reel. The same can be said for talking about our biggest investing failures. However, embracing these moments is crucial, as Ray Dalio wisely puts it, ”Pain + Reflection = Progress.” The toughest lessons are often the most valuable. Here’s a rundown of my biggest investing mistakes and the reflections that came with the pain:
1) The Overconfidence Trap – After completing the Chartered Financial Analyst (CFA) designation in 2007, I thought the distinguished designation made me a lot smarter. Turns out, it just made me more overconfident. I invested in two companies, iGo and Almost Family, only to watch them vanish along with my capital.
- Lesson: We all tend to struggle with overconfidence. It’s called the Lake Wobegon effect. There’s “fun” money and “future” money – don’t mix ‘em up.
2) Not Knowing the Odds – In the 2008 financial crisis, Bank of America stock fell from $55 a share to $25. I thought it was a steal so I bought some. It would bottom at $3 per share. (Turns out, it was a steal for the investor who sold me shares at $25.) As you can see from the chart below, that wasn’t a good idea or good value as it took 10+ years to recover.
- Lesson: Most stocks stink – over 40% of stocks in the Russell 3000 index had negative returns from 1980-2020. More on this phenomenon in an upcoming blog.1
3) Insurance Missteps – In my youth, I prioritized life insurance, unaware that disability is thrice as likely. Your ability to earn income is your greatest asset.
- Lesson: Don’t overlook disability insurance in favor of life insurance. Both are important. Understand your employer’s disability coverage and consider additional policies if necessary.
4) Saving too much – You read that right. After college, many of my friends lived in apartments in fun parts of town surrounded by their peers. I chose an apartment where I was surrounded by people twice my age. Sure, it was a great deal and I socked away extra cash but was that a great trade? I’m not so sure.
- Lesson: Balance is key. You can’t take it with you and tomorrow (or retirement) isn’t guaranteed. Don’t put all your eggs in the savings or spending basket.
5) Not Using Target-Date Funds Sooner – Target-date funds are funds that hold a basket of securities that automatically get more conservative as a chosen target date approaches. Instead of choosing 8-10 funds to create a portfolio, you can own one low cost, diversified fund.
- Lesson: Target-date funds now make up a considerable portion of my 401k and my kids’ 529 plans, freeing up my time and energy for other life priorities. Simplicity is the ultimate sophistication.
And here’s the kicker: sometimes life serves up exactly what you need, even if it’s not what you want. Failure can flatten you or fuel you. That finish line fiasco? It taught me valuable lessons about staying hydrated and knowing the course – essentials for getting better and qualifying for Boston a year later. It’s why when we fail, we should say, “Good!”
It’s been 15 years since my failed stock picks. The lessons, or scars, clearly paid big dividends. Investment chit-chat is often just bragging rights. Fun? Sure. Enlightening? Not so much. Remember, you learn a lot more from the misses than the hits. In my house, we live by this: “We win or we learn, but we never lose.” Drop a comment and tell me what you’ve learned from your biggest investing mistakes.
Castle Quote: “If you learn to use it right, the adversity, it will buy you a ticket to a place you couldn’t have gone any other way.”
– Tony Bennett, University of Virginia’s basketball coach said this quote after becoming the first ever NCAA #1 seed to lose to a #16 seed in 2018. The next year, Virginia won the national championship.
Leave a Reply