5 Common Investing Mistakes I Made that You Should Avoid

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Jae Jun

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Back during my schooling years, I studied the same problem again and again so that I didn’t make the same mistake come exam time.

Problem was, I was horrible at application.

If the exact question came out in the exam, I killed it.

But that rarely happened. The question  was always worded differently and confused the heck out of me.

I ended up screwing up similar questions multiple times.

The market is like this.

You make investment mistakes and in order to make sure you get it right next time, you focus and tell yourself you won’t make that mistake again.

But then a slightly different stock comes along and before you know it, your tendencies start to come out….. again.

This happened again in 2013 and since I know I am not perfect, I want to share some short reflections on the common investing mistakes that I have made.

It’s time to confess.

Common Investing Mistakes that I have Made

1. Trying to Time the Market

Everyone is affected by what the market does to a certain degree.

The  biggest problem is that with the market zooming up, uncertainty about when to buy creeps in.

Should I buy now?

Or should I wait a little to see if the market corrects itself and get a better price?

The fix?

Focus on the investment quality of the business and to buy it at a cheap or fair price independent of what the market does.

2. Focusing on the Stock Price and Not Intrinsic Value

There are two parts to common investment mistake.

If the intrinsic value of a stock is 50% or even 100% higher, then waiting for the stock to drop a measly 2% before buying doesn’t make sense.

I have found myself quibbling over wanting to buy it “just a little cheaper”.

How many times have you found yourself submitting a buy order and entering the bid price just a few cents lower than the stock price?

Stop quibbling over cents.

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The second point is that the stock price does not dictate intrinsic value. If the stock drops 20%, it’s easy to get worried, but the best thing to do is nothing.

I’ve made the mistake of making an emotional decision.

The stock price is not an indicator of intrinsic value.

3. Holding a Loser Until it Breaks Even

I fall for this one more often than I should.

A dreaded bias of not wanting to close the position on a stock at a loss that I invested a lot of time and effort on.

GRVY was a net net and had the makings of a huge profitable investment.

Like all things in life, it didn’t turn out the way I had planned.

With my investment down 50%, I did hope that I would break even. But over the past year, I have scaled back the holding.

I still hold a small portion because at the current price, it would also be an emotional move to sell out completely.

The value of the cash on hand far exceeds the stock price and as much as I want to sell and be done with it, I know that even crap stocks make good investments at dirt cheap prices.

4. Overly Focusing on Other People’s Opinion

There are pros and cons to this.

The pros are:

  1. it’s a shortcut to investing especially when you’ve found somebody you can trust
  2. saves time
  3. build a diversified (> 20 positions) based on other solid value investor picks and it beats the market

The cons are:

  1. you don’t know what you are getting yourself into
  2. you don’t know exactly when to sell
  3. you don’t know what to do if something bad happens and you need to keep asking for opinions

It’s truly a big mistake when you end up completely relying on another person on the investment.

I bring up GRVY again. Yes I screwed up on that one, and I know people also bought into it as well. The mistake is that I can’t provide live updates for every move GRVY makes.

Becoming overly dependent on someone else is a mistake which is a huge portfolio risk.

5. Not Utilizing My Checklist Enough

I do have a checklist that I refer to. I purposefully didn’t make it into some gigantic list or to be very exhaustive.

But by using just one set of checklist, I end up looking for the same style of companies. My checklist needs to expand and evolve into something that can handle different types of investments.

A collection of shorter checklists is needed that is suited for different situations such as:

  • common value plays
  • turnarounds
  • high growth stocks
  • and net nets

Not only will this help make better decisions, but it will also reduce time during the research phase.

You need to have clear goals of what you want to know instead of wandering and figuring out what you should do be looking for.

Bonus Mistake: Handling Too Many Accounts

This is more of a problem than a mistake, but I would love to hear your opinion on it.

It’s a personal one and it doesn’t look like it won’t be going away anytime soon.

I’m currently managing 3 accounts for my investing.

  1. 410k to trade stocks
  2. A personal brokerage account
  3. A new investment account for OSV

Problem is that I can’t combine any of them and the difficult part is having to log onto all three accounts to make transactions.

Since all three accounts have different balances, it becomes a chore and time waster trying to manage, track and maintain 3 different accounts.

If this sounds familiar to you and you have a method of making it easy, please leave me a comment and let me know.

Going Forward?

Am I the only one to make these 5 mistakes?

Are these the only ones that I’ve made?

No to both.

But looking back throughout the years, I have been making progress in reducing mistakes and there will be many more mistakes to learn from and keep in check.

So think back to some common investing mistakes you’ve made. Now it’s your turn.

What mistakes have you made and what are you going to do about it?

  • DC

    Some investment sites allow more than one account.

  • Viet Nguyen

    Nice Article as always, Jae. I do have just a few questions though. And maybe someone else can answer too.

    1) What’s the difference between “timing” the market and waiting for a buying opportunity? For example, I’d LOVE to won a stock like Coca Cola, for example, but I want to buy it at cheap price, say at 12 P/E rather than the 20ish it is at now.

    2 and 3) when is the right time to dump off a stock? Obviously, i’d want to jump out of a stock if its not fundamentally sound.

    But lets say i buy a company like, iono, Monster energy drink, and it drops 20%.

    But then I use the OSV Stock Evaluator and see that its core business really hasn’t changed and the market is just being irrational per usual.

    I hardly would consider it a “loser.” In fact, i would probably see it as a chance to buy more of it at a discount!

    That is to say, I’m having a hard time differentiating between dropping a “loser” and doubling down. Its kind of really tough to call because you’ve already invested (pun intended!) all this time reading up on a company to convince yourself to buy it. And obviously you thought it was a sound business with a moat before you bought it. So when is it time to call it quits and cut your losses?

  • [email protected]

    Cliche, but as they all say, experience is the best teacher. I’m pretty sure there are several others, yes including myself, who have made these very same mistakes. Naturally, we’d want to make the best of investments and minimize losses as much as we possibly can. Sometimes we focus too much on these alone that we sort of lose track of all the other essential things to consider. This is a very helpful article you have here, on another note.

  • http://www.oldschoolvalue.com/ Old School Value

    yes but one is a 401k, one is a business and one is a personal brokerage. Unfortunately, I cant have a single log in for all three.

  • http://www.oldschoolvalue.com/ Old School Value

    1) Timing the market is focusing too much on the macro.

    For example, I found a few good opportunities last year, but I decided not to buy and stay in cash because I was thinking that a correction would come.

    That is timing the market.
    Essentially, I’m trying to guess what the market is going to do.

    2-3) Here’s how I differentiate cutting losses or selling.

    First you buy with a thesis. Whether it be because the business is sound or whatever. But if the company hasn’t changed fundamentally, then it’s time to double down.
    However if you see some issues with how management is operating or they are taking risky acquisitions etc which doesn’t fit in with your original thesis, time to cut losses and sell.

  • Viet Nguyen

    good point on 2 and 3.

    thought the only caveat I do have for 1) is that I do try my best to be a Warren Buffet wanna-be and I try keep about 10% of my portfolio in cash– my “elephant gun” as it were.

    So when something I like does become really cheap, lets say Coca Cola gets down to 10 P/E, I’m ready to back up the dump truck and buy as much as I can.

    Is that considered timing the market? Iono. I guess i’m we’re arguing words at this point.

  • http://www.oldschoolvalue.com/ Old School Value

    no you are right. There is a difference between having cash on hand as opposed to waiting thinking that you know what the market is going to do.

    Timing the market is more like trying to get in at the lowest point and selling at the highest point. Completely different mindset to having cash ready to buy your a stock on your buy list if it drops in price.

  • Jacob

    Interactive Brokers has the lowest-cost solution for this that I know of using their adviser/wealth manager account structure. You can trade many accounts through it and even allocate orders across multiple accounts to reduce commissions. If you are not a registered adviser you can have up to 15 “friends and family” accounts in the structure. Shoot me an email if you’d like to hear more about my experience.

  • http://www.oldschoolvalue.com/ Old School Value

    I’m aware of IB. I wonder how it will affect my 401k since I cant move it over.

  • Jacob

    IB supports some pension and 401k accts too, might want to look into it if you have discretion over the acct

  • James

    Yes Jae,
    I have committed all five mistakes myself plus the bonus. As I have matured as an investor, I no longer make the first five mistakes because of the confidence that I have gain as an investor in stocks. The bonus mistake, I’m still making. As a matter of fact, like you, I’m currently managing three different accounts ( Traditional IRA, Roth IRA, Brokerage Account). I have drawn an importance lesson from this. My best performance has been when the accounts contained no more than ten to twelve stocks. With stock market investing, more isn’t necessary better.

  • http://thebrokeandbeautifullife.com/ Stefanie @ brokeandbeau

    I definitely struggle with #3. Holding onto the loser until it breaks even. Why can’t I let it go?