My Investment Mistakes

We are not perfect, will Mrs. CF is of course (yup, I’m in need of brownie points), but I’m certainly not. Ignoring (many) mistakes on a personal level, which mostly don’t involve financial issues, financial mistakes were definitely made too. How did I screw up, why and what are the lessons learned? Here are my investment mistakes!

My Investment Mistakes

We were having a chat in the FIRENL slack group (which is surprisingly addictive and popular; all in Dutch) about investment mistakes. It was good to read that I was not the only one, but it made me realize I had my fair share of financial screwups. Most of them due to being arrogant and misinformed. Most of them also because of a short term vision. But also some because they don’t match my psychological profile. Let’s have a laugh (& cry) here shall we?!

My investment mistakes
My investment mistakes

Sprinters

Back in 2009, when we had moved abroad, I still had some money in a savings account. Because we didn’t need this money at the time, I decided to play around with this money on the stockmarket. This was mistake 1. I bought and sold some shares, which worked out okay but did not make much money. I got arrogant thinking that when I could make a little bit of money, I could also make more! This was arrogant mistake 2. I started trading with leveraged products (ING Sprinters). At the beginning I lost some, won some, lost more, won a little, and lost a lot!

Total damage: ~€9.000. I didn’t return to the stockmarket for about 6 years!

Moral of the story, don’t daytrade and definitely not with leveraged products. The chances of losing money are a lot bigger than making money in the longer term. Buy-and-hold rules! See also the graph below, and I was way worse!

High Dividend Yield

At the beginning of developing our dividend portfolio (2015-2016), I still needed to learn a lot. Based on the above I had somewhat learned to look at a longer period to invest (and not use leverage). But what I didn’t learn yet was to remain critical and not chase dividend yield. I had already seen several stories about dividend growth and it’s longer term return on investment “miracles”. So somewhat wisely I did pick the majority of our shares with a chowder rule of >12%, low(er) PE ratios and acceptable payout ratios.

However, when companies pay a very juicy +7% I did get tempted…….. and I got burned. The companies I bought were often cyclical in nature but well established. However, their business models were under attack due to changing market conditions, their debts were high and their earnings per share under pressure. The yields, as appealing as they seemed, were not sustainable. I’m talking here about NewAlta (NAL), Liquor Stores (LIQ) and Corus Media (CJR.B). So, I took my (our?) losses and moved on to other actual dividend growth shares.

Total damage: ~€5.000

Moral of the story, do not chase yield. It will lead to financial losses in 9 out of 10 times. Look for the companies that grow, have a solid business model and have lower payout ratios (so they can continue to keep paying your dividends).

My investment mistakes
My investment mistakes: I’m a loser sometimes! Pun intended 🙂

Options Trading

During a FIRE meetup in Antwerp I was introduced to options trading. The supplementing investment strategy that I found interesting was writing put options and collecting the premiums. Owning some dividend shares during a bull market, this seems like a good idea for some extra yield.

Wisely I started small to get a feel for how this option trading works. You can still find some of the option trading update posts under the “options trading” category in the side bar. However, I made and lost some money on the options again. Sometimes due to share price fluctuations but mostly due to the desire for (high) yield. I started to take more risks to recover losses I made. After a substantial market correction for some shares (which today have actually recovered!), I ended up losing my shirt.

Don’t get me wrong, you can make very good money with trading options, but you have to be consistent and stay calm under pressure. My psychology simply does not allow for that. I keep staring at that screen with red numbers and don’t feel well. I also don’t like the pressure of the unknowns that affect these option prices and movements in time. It’s not an investment method that works with who I am and how I work mentally. I simply felt very uncomfortable with this investment method. So I did what financially was not a smart decision, but psychologically was the best; I sold everything and moved on.

Total damage: ~€4.000

Moral of the story, do try different investment methods to find what works for you. But start small and as soon as you see that you get carried away, stop! Limit your losses and move on to an investment type that works better with your psychological profile. It will ultimately make you a better investor and a happier person.

Conclusions

I’m one of those people that has to try different things, to fail, get up and move on. I could have avoided many costly investment mistakes if I would just be true to myself and would have listened to others. I’ve been too arrogant and thought that I could chase yield and get away with it.

In contrast, Mrs CF is far more sensible and has not made any of these investment mistakes. She was the one that liked the real estate and initiated the first two property purchases, which have only made us money to date.

That being said, these personal lessons learned have gotten us to a mixed portfolio consisting of real estate, dividends shares and index funds. It might not be the best yielding investment portfolio, but I’m now comfortable with these investment, their price fluctuations and risks. I’ve also finally learned to look for the longer term and stop chasing high, unrealistic, yield. Furthermore, I won’t make the same mistakes again either! I’m happy with where I (and we) am (are) today.

 

How about you? What mistakes have you made? What did you learn about yourself and how you invest?

 

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22 Comments

  1. Thanks for sharing your experiences, I am „guilty“ of several investment mistakes, chasing yields e.g. is so tempting, and so tricky indeed.
    But these are mistakes essential as we are all learning.
    And the worst financial mistake I could think of is not saving and not investing at all.

  2. I still need to do mine because this little sloth got greedy, went way to high in leverage (despite me telling on my blog I needed to deleverage) and then had the very unpleasant experience of staring down the gaping mouth of a margin call. yes, the leverage position with AB Inbev did end up not going well and cost me roughly 38.000 euro.
    It f*ing hurt, is an exeprience I rather not repeat and honestely, I still don’t feel like writing a post about ..

  3. Oh how I can relate! I tried my hand at individual stocks too. It didn’t end up in total disaster, but I was humbled by the experience. I basically left about 10 grand sitting idle, after averaging out my epic wins with the epic fails.
    Take heart – You’ve got real estate in the mix, and that’s a powerful instrument!

    1. RE is certainly a powerful investment! But even there, I can remmember the stories from the states in 2008-2010 of people who had 20+ properties and went bankrupt. There is risk everywhere, in different categories obviously!

    1. You know, I doubted including the “not starting to invest”. Because that would have been easily €200.000+ euros. That “mistake” is indeed far bigger than losing money on some gambling with stocks.

  4. Everyone makes mistakes. That’s part of learning and becoming a better investor and person. You have the right attitude about them and seem to have become a better investor because of it. Luckily the damage as not too bad in the grand scheme of things (although every dollar/euro helps) and hopefully you have made more because you have learned other things the hard way.
    One of my lessons I learned was not to chase yield and I will tell that to any dividend investor that is willing to listen. Yield can be attractive and who wouldn’t love a 7%+ return? But if you don’t pay attention to the right metrics, you’re going to get burned.

    Thanks for sharing.

    Bert

    1. Hey Bert,
      Yes, I definitely learned from my mistakes and have become a better investor as a results (albeit still learning & improving).
      Wise words indeed about the yield, it’s so appealing and so dangerous!
      Cheers

  5. My biggest mistake I consider buying shares for the short term just because I think for example that gold is at a low or that oil drilling companies will finally recover. Of course I was never able to time the market and at some point decided I should not make investment decissions for speculative, short term, reasons.

  6. Good to read your story about mistakes in investing. Now I don’t have to make those mistakes to take the same lessons. It will save me a ton of money 🙂

    1. Definitely don’t make the same mistakes I did, about half a year of earnings disappeared over the years! That’s not a great way of using your hard earned money.

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