How many of you have never made a mistake in your life?

Not once?

Few of us can say that we don’t make mistakes at all and reading Musicwhiz‘s post here got me thinking about the role experience teaches us about ourselves and how to conduct our lives better with regards to our journey towards financial freedom.

Making mistakes are part and parcel of the human condition.

In my journey towards financial freedom, I’ve made more than my fair share of mistakes. Here are some that I would like to share with everyone today.

Confusing investments and speculative punts

The thin red line between investing and speculating lies in the mind and motives of the investor. There is nothing wrong about investing for the long-term or speculating on the short-term. Bad things happen when the two are confused.

My own investment mistakes have been not knowing why I was buying a stock at that price when I clicked on the buy or submit button for the order through my share trading platform.

I realise from losing money on speculative punts turned into long-term holdings and over-eager sales of solid counters when I didn’t need the liquidity that it’s important to know your motivation before you buy or sell.

This is because your the subsequent approach to monitoring your purchase depends on your motive. If you are in it for the long-term, you should do some research about the prospects and financials of the company before you come up with your target price to buy and hold. This requires you to do more work before you buy. After you buy, you put it aside and don’t monitor the daily movements are you are more interested in the long-term growth of the company.

Speculative punts are bets. They typically fare better when there is volatility in the market and you have to watch the counter very closely to take advantage of major moves at opening, closing and throughout news that can potentially affect the price of your punt. You need to also consider cut-loss and take-profit levels.

This means you need to watch the screen and have an idea on the short-term trend of the market.

It’s very different from investing for the long-run and it can give a gambler’s high when you make the profitable trades in a very short-term that beat returns of 0.75% per annum from Maybank iSavvy savings account.

Inability to Overcome Greed and Fear

The twin terrors of greed and fear grip the very best and worst of us when it comes to investing. I too fear to lose money and constantly fight to overcome the greed to hold on to gains and not lock-in even for speculative punts.

The more I invest and trade in the market, the more I realise you have to sometimes lock-in profits when the market moves sharply up because it’s not sustainable. Also, most of the profits I’ve made on speculative punts were due to contrarian views, i.e. to buy when market is selling and to sell when the market is buying. But the caveat in my own experience is to buy quality, i.e. shares that have some intrinsic value e.g. bluechips like banks, govt linked companies that provide major products or services.

Of course, the trick as everyone knows is what is the fair value of these companies and when do you get in or out of the counter.

Knowing what you want to do

Ultimately, learning comes from investing in wrong asset classes or to be scammed. I have bought unit trusts that didn’t deliver returns, I’ve gotten conned on timeshare before and I’ve lived to grow stronger because those past mistakes pushed me to want to learn more about how to manage my own money, to balance the risks and returns and to be more open to different investment strategies.

There is no perfect financial plan for everyone because too many variables cannot be controlled. When you live/die. If we have dependents (or not). Whether we make a windfall or not. Whether our investments deliver or not.

What I’ve learnt from all the errors I’ve made is that there’s no sure plan towards financial freedom. There are sure principles that will help you move closer to your dream of finacial freedom, i.e. to live within your means, to save and invest, to grow and protect your means.

Everything else may or may not work. The solution is to dabble in some and find out what type of investments suit your own risk/return tolerance and to try it out while being open. So long as you follow the principles, they will guide you.

How have you learnt from your own investment mistakes?

Be well and prosper.

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