I've been investing in the stock market for many years now, and have experienced both the best and worst the stock market can throw at you. I setup my self-managed super fund (SMSF) in the midst of the Global Financial Crisis, after watching the balance fall and fall and fall in my employer's recommended super fund. I then watched my SMSF balance continue to fall. Needless to say, it was a stressful time.
And then there was the time I fluked my timing perfectly, and invested funds I had borrowed into the market just as the US invaded Iraq and stock markets around the world were at close to maximum pessimism. As markets recovered, my portfolio took off and generated substantial double-digit returns in just over six months.
Here are my 10 biggest mistakes…
- That I didn't start early enough. Beginning investing in my 30s is certainly better than trying to generate a retirement nest egg in my 50s or 60s – but I still wish I'd started investing at an earlier age to take advantage of the magic of compounding returns.
- Chasing high yielding companies without fully understanding their business. The dollar signs were flashing on some stocks with yields of 10% a few years ago. Unfortunately for me, both Great Southern and Timbercorp went bust.
- Allocating too high a percentage in highly risky businesses. Yes, I put too much capital into stocks like Timbercorp and Great Southern, and less than I should have into better companies like Washington H. Soul Pattinson and Co Ltd (ASX: SOL), Macquarie Group Ltd (ASX: MQG), Mortgage Choice Limited (ASX: MOC) and ASX Limited (ASX: ASX).
- A lack of patience. That resulted in far too high trading costs and a portfolio with more companies than I should've had. It's something I still struggle with.
- Selling stocks too early. Having held Mortgage Choice for nearly four years, I sold out in 2012 for a reasonable profit, only to see it double from there in just over a year.
- Believing the hype of management. When it comes to resources stocks, I've learnt to take management's production forecasts with a large grain of salt.
- Buying hot stocks on a tip without doing my research. Matrix Composites & Engineering Limited (ASX: MCE) was one such stock. I was lucky enough to get out well above the current price, but it was still a loss that hurt.
- Being too greedy. With some stocks, I should have sold out when Mr Market was offering me a ridiculous price. I passed and ended up riding the stock all the way back down past my purchase price.
- Not investing in US stocks earlier. I've only recently begun buying international stocks, although I have held large positions in offshore exchange traded funds for some years. I wish I'd made more of an effort to buy Google, Amazon and Berkshire Hathaway years ago.
- Buying into 'turnaround' stocks that didn't turn. Warren Buffett has famously stated that these types of companies 'rarely turnaround'. I didn't heed the master investor's advice.
Despite all those mistakes, I've still managed to generate returns of around 13% a year on average for my SMSF and investing portfolio. And that's the greatest thing about investing over the long term. I've learnt a great deal, and will still make more mistakes in the years ahead, but time gives me an edge to more than make up for those blemishes.