The biggest mistake I made as a long term ASX investor was to ignore the power of compound interest.
Sure, I have had some absolute blunders in the sharemarket.
For example, I lost more than 50% of my money on instalment warrants of Rio Tinto Limited (ASX: RIO) — in less than a year.
My investment in G8 Education Ltd (ASX: GEM) shares cost me (very) dearly.
Slater & Gordon Limited (ASX: SGH) was… well… the single most expensive investment I ever made for my family's portfolio — and my own.
I invested in Reffind Ltd (ASX: RFN) in the 'hope' they would make money.
And I have learnt the hard way what poor management can do to a small company, like Yowie Group Ltd (ASX: YOW).
But none of these mistakes even compare to my failure to recognise the power of compound interest.
Because while I was trying to find the next gangbusters growth stock, I missed one very important idea: losing money destroys your ability to compound your wealth.
I'm still well ahead since I began investing.
But throw in an itchy trigger finger with emotions and you can easily and quickly mess-up an opportunity to compound your wealth at an extraordinary rate.
What not to do
Based on each of those terrible investments above, here are some thoughts:
- Rio Tinto: Keep investing simple. I've never heard of anyone who has got rich by investing in 'warrants'.
- G8 Education: It's okay to change your investing style. But there is no rush.
- Slater & Gordon: Don't take management's (or the auditors) word for it. Read the notes to the accounts.
- Reffind: Hope is not an investing strategy.
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Yowie: Position sizing is important. I put far too much in a company that was not profitable.
Be a better investor
My advice now is that you can try your hand at researching and investing, but don't let it come between you and the beauty of compounding.
If you have $1,000 to invest, stick half of it in a well-diversified portfolio and half of it in the other companies that you want to own. The diversified portfolio will also rise and fall. But so long as you accept it, I think it will reward you again and again over many years.
Just $500 invested every month for 25 years at an 8% return (slightly below the share market's long term average) becomes $442,060.
