In the online world, everyone shows earnings, successes, and portfolios with double-digit returns. But the reality that no one tells is also made up of losses, of closed positions on the wave of emotion, and sometimes unfortunately also of real dramas. In this article, I want to take a cue from my experience to tell you about some financial mistakes made over the years in the hope that talking to you about it will help you not find yourself in the same situation.
I am 43 years old and in my twenty years of experience as an Investor, I have made so many financial mistakes. In this article, I want to go through them all.
My life as an investor began when I was 23 and fresh out of college, I decided to open a Fineco account to do online trading.
I had attended a master’s in which one of the teachers was one of the leading experts in Technical Analysis.
He had written one of the first and most complete books on the subject and between Japanese candles, head and shoulders, resistances, and supports, he had introduced me to a world as new as it was fascinating.
Maybe I should have understood from the old Ford he drove that it’s not always easy to turn ideas into hard cash.
I still decided to give it and give myself a chance as a Trader.
My father gave me 3,000 Euros as a graduation gift.
It wasn’t a big amount, but it was enough to start and in my dreams to create a small monthly income.
Between an intraday trade and another, I lost everything quickly.
I did not stop there and continued in random operations, generated each time by the story read or heard of that man who, thanks to trading, was now running in a Ferrari or Lamborghini.
Today I see once again a great enthusiasm among the new generations, dictated by the ease with which the stock market has given great satisfaction to everyone in recent years.
Technical analysis has lost some of its appeals and has been replaced by value investing or intuition.
However, I don’t think that all investors who proudly publish their monthly earnings today will be able to do it again in 3 or 5 years without even reporting some resounding failure.
Unfortunately, the market gives results to those with patience and it is very easy to delude yourself that you can always win especially when (thanks to the market trend) good initial results are obtained.
Storytelling needs success stories and champions, but the truth is different and I want to tell you a series of failures.
In this article
- Getting the timing wrong
- Choose (super) risky tools
- Investing money without having the real availability
- Changing your mind too often and acting on the wave of emotion
- Listen to selfless advice and trust people
Getting the timing wrong
Time in investing is very important.
It is true (until proven otherwise) that markets tend to rise in the long run, but entering markets at the highs or lows can make a huge difference.
Here I must have missed the moment of entry a thousand times, but what I have done wrong most often was the moment of exit.
In 2012 I bought 1,256 Facebook shares at a price under 20 Euros and 10 Amazon shares at around 250 Euros for a total investment of around 27,500 Euros.
I remember very well the logic of that investment.
I had made a lot of money online and thought that reinvesting the earnings in the same sector would guarantee me a great return given the growth prospects.
The investment went well, but obviously, in front of the green sign, I was not able to resist and immediately sold everything, also feeling like a half genius.
Today those shares would be worth 365,000 euros.
I would never have kept them that long, but, in any case, I could have earned a little more if I had believed a little more in my initial idea.
Choose (super) risky tools
As for risky tools, I think I’ve tried a lot of really borderline things.
I remember that for a while I was obsessed with the High Yield Investment Program (HYIP), which is the Ponzi scheme.
I thought I could make money with a little cunning.
I don’t remember losing any money, but obviously, I didn’t make anything.
However, if I have to think about a period in which I lost a lot, I remember the period of investments in Forex, that is, in the currency market.
The Trading in Forex, maybe Lever, is the tool with which it is easier to lose a lot of money illusion to learn and not repeat the mistake.
I also remember that as soon as I started trading I immediately tripled my account.
I had found my way. Too bad it then took me only a few days to burn the entire bill.
I also remember the adrenaline and waking up during the night to check some currency crosses.
I continued like this for a year then the turning point came.
Not happy with the bankruptcy experience done independently, I was charmed by a Forex Copy Trading site.
If I couldn’t make money on my own why not make money without doing anything and just copying the best traders?
The site is called Zulutrade and is still active.
My results were (obviously) truly unsuccessful.
I burned over $ 6,000 before realizing it wasn’t possible to consistently earn this way.
Investing money without having the real availability
In 2011 I lived in a small apartment in the Milan area that is now called NOLO, but which was certainly not a trendy area at the time.
I liked that neighborhood very much for its working-class roots, its human dimension, and its proximity to the Martesana canal, even if coming home with the ball spitter under the house was a bit surreal.
In any case, in 2011 I had no children and I was earning quite well, I was paying 400 Euros of mortgage and I was saving about 1.000 Euros per month.
What to do with it?
At the time, government bonds yielded quite well and therefore every month I bought a BTP preferring long maturities given the higher yields.
These were also the years of the default of Greece, the Monti government, and the skyrocketing spread.
And at one point I found myself with about 35,000 Euros invested in a portfolio of BTP2037 which yielded about 7% net annually.
As seen today it was the investment of the century, but in 2011 my first child was born and I decided to look for a new home.
I didn’t even buy a new house right away.
In the meantime, however, I immediately sold those BTPs with a good capital gain but lost a lot of coupons and the capital appreciation of the following years.
That money remained in my non-interest-bearing account for the next 5 years.
Changing your mind too often and acting on the wave of emotion
Changing your mind is synonymous with intelligence, but doing it too often is certainly the result of insecurity and indecision.
In the financial field, I think I have little patience and too often have made the mistake of not waiting for the course of events.
It is right to evaluate all the scenarios and envision everything that may occur, but I think it is wrong to act accordingly whenever you have an idea or a concern or if there is some change in the surrounding environment.
Ideas also need to mature, decant, and sometimes be set aside.
Taking time is, therefore, an excellent way to improve your decision-making process and to neutralize the anxiety that sometimes the emotions of the moment give us.
For this category of financial error I have not just one example but myriad examples of entering and exiting the market just to pay commissions to my bank.
Listen to selfless advice and trust people
In 2010 I was working in the world of Private Equity and I went to lunch with Simone Cimino of CAPE, a fund just listed on the stock exchange.
CAPE Live was born with the idea of bringing the retail investor closer to the world of Private Equity, usually intended for institutional investors or large assets.
I was also seated at the table with other important exponents of the financial world.
Everyone showed interest and admiration for the quotation project about which this person spoke to all the diners with such emphasis.
He convinced me and I bought CAPE Live shares.
After a short time, the brilliant finance manager was arrested, the fund was closed and the shares were delisted.
After a few years, a friend told me about an American stock, Sun Edison.
It was a renewables company that had seen its share value halved, but which, according to its CERTA sources, was ready to rebound.
I hurried to buy this jewel, without even informing myself of the serious reasons that had led to the collapse of the stock.
Immediately the action bounced. My friend was right, so I doubled my investment but after a few days, the company announced bankruptcy.
The value of my shares was zeroed.
Today I read with distrust the articles in the newspapers that praise the genius of an entrepreneur and the results achieved by that particular company.
The need for certain companies to communicate is often dictated by the desire to hide situations that are not exactly clear and the history of financial scandals and not only is certainly the litmus test.
Ultimately I lost a lot of money and today I think financial insurance mistakes shape people.
They often preclude many future opportunities as well.
For example, until now, I have almost abandoned the stock market, not considering myself able to follow my investments in the stock market with detachment.
Today, however, I would be ready to invest in shares without having to check the trend and prices every moment.
I have some extra security dictated by having a portion of my investments safe and invested over the long term.
Thinking back, most of my mistakes were dictated by the desire to anticipate the times by looking for a shortcut to wealth, combined with excessive emotionality.
But Wealth, as Naval also reminds us, of which I spoke in a recent article, is a process characterized by constancy and many small actions.
Arrived here I am also waiting for your contribution in the comments to this catalog of financial errors!