I recently arrived at a difficult conclusion: I’m a bad investor. To be more specific: I’m a horrible stock picker. It’s taken me 7 years to come to this realization and I now feel at peace with my place in the investing world. I first started investing with a financial advisor into high fee mutual funds. My money grew slowly but I thought I could do better.
After opening up a Qtrade account, I began investing in individual stocks and I was instantly hooked. But this was an addictive, unhealthy hook. Owning individual stocks caused me to constantly check stock apps to see the daily updates. It was sucking up my time and I used it as a distraction from life’s stresses. It’s the ultimate dopamine hit when a stock you own doubles or triples in the span of a week. I thought this was investing.
The annual return on my investment account during my first year of stock picking was 89%! I thought I was the next Warren Buffet. Alas, my next year’s annual return was -49%. I lost it all and more. I still didn’t learn my lesson though. It took me 4 more years to stop investing in stocks and fully believe in index funds.
Since I’m a decent saver, I usually had extra money to invest every month. Some would go into index funds but the rest would go to stocks. Some times I would invest in stocks of products that I used personally like Beyond Meat(BYND). Other times I would buy stocks based on recommendations from friends. I would even buy stocks based on stock value screeners. After reading about Warren Buffet’s value investing, I thought that if a stock was undervalued that it would eventually go up. Wrong! Check out EBIXQ, formerly EBIX.
There are two habits that a person needs to achieve financial independence; saving and investing. While I had the savings part nailed down, the investing part was a mystery to me.
Being a Great Saver
Some people are naturally great savers. They have the discipline to say ‘no’ to frivolous purchases and often find value in things and experiences that don’t cost much. This can be detrimental to their mental health and relationships, but we aren’t going to get into that here. Most people would agree that it’s good to save a bit for the future.
What you do with those savings matters. If that money doesn’t improve your life or future life in a meaningful way, then it is a waste. It’s important to have a reason to save. Are you saving for a home? Are you saving up an emergency fund? Are you saving to buy your future?
Having a clear goal and vision is crucial. Otherwise acts of savings will feel like deprivation.
You are always buying something with your money, even when you are saving. Are you buying junk or buying your future?
Being a Horrible Investor
When I started to invest in stocks, my goal was always for that stock to double. If this sounds to you like gambling in a casino, you are correct. But because it was in an ‘investment account’ it surely couldn’t be viewed as gambling or risky. Sadly, for me, investing in stocks was the exact same experience as going to the casino. Except I could do it right from my phone or computer and nobody would know.
In Napoleon Hill’s book, Think and Grow Rich, he outlines the most common causes of personal failure. If you haven’t read this book, it’s definitely worth the read. When I read all the curses of failure, the one that jumps out at me was a person’s uncontrollable desire to get ‘something for nothing’.
That was me! While I worked hard at my job and sacrificed to invest, I was trying to get additional gains quickly and for nothing. This line of thinking runs along the same vein as roulette, blackjack, and slot machines. From an outsider’s perspective this might seem incredibly obvious but when you are inside the stock picking trance, it seems like the best way to make money.
What’s Next?
I realized if I would have just stayed with my finanicial advisor in high fee mutual funds, that I would probably be financially better off at this point in my life. But I would have not have learned all those valuable lessons that mistakes and failure teach. I wish I would have learned sooner but better late than never.
Now, all my money is going into index funds and I’ll wait patiently as it builds. The best thing to do is to automate your contributions into low cost index funds and check them monthly. Spending time researching stocks or checking stock apps is a waste of time for most people. That time is better spent with friends and family, learning new skills, and investing in yourself.