My Biggest Investment Mistake and the Lessons I’ve Learned

Money mistakes are one of the most personal. It’s easy to hide in shame. How do you learn from the experience and grow from it?
Adam

Written by Adam on 2021-05-05. Spotlight, Invest. 1 comment. Find out how I make money.

With Minafi is on break for 3 months, I’m highlighting stories by a few Minafi readers and friends of mine. Todays article comes from Mia Wilson, a financial advisor who wanted to share her story.

2 years back then, I became a victim of my worst investment mistake and lost $30,000 in one day. It was a heart-wrenching day because 90% of the stock was down the drain. I was shattered and flabbergasted by how this might have taken place as I had two partners collaborating in my projects. 

Being a business graduate and a professional investment analyst, I was sure that I am running my investment business strategically. I quarreled with my two partners as I was unaware of how I lost thousands of dollars in a day. It took me months to recover from the loss of my business being severely crashed in a day. I had to liquidate one of my companies and reduce my shares in the stock market. After pondering over the cause of the investment failure, I was unimpressed by the fact that my carelessness drowned me. 

Let’s dig into the story of my biggest investment failure

I won’t completely blame my partners because they were my sincere friends but maybe the envy took over. I trusted my partners blindly for all my shares, companies, small business, and major investments. One of my partners asked me to invest in a newly launched company with a fiscal market capitalization of less than $200 million. On his suggestion and without researching the progress of the company, I invested a significant amount of my money in the company. Being a professional investor, I was happy about my new investment and upcoming profits. The first three months went fine with 30% profits and a surge in shares.

The next 4th month was a disastrous time as 70% of the company’s stock lost their value. I was furious and speechless as my investment image in the market was eroded. Concluding my biggest investing mistake, in a nutshell, make a thorough and deep analysis of a project or company before investment. Also, never blindly trust your partners, employees, and shareholders.

I worked hard tirelessly in my initial days to become a renowned investor in my country. I was about to reach that position but because of my own investment blunder. It took months to recover mentally and financially. This investment mistake taught me multiple financial and investments that I would like to share with my peers.

Lesson#1 when everything turns upside down, focus on the good

I had the dream of becoming a domain expert in my country. This dream of mine kept my identity, other talents, and a complete life hidden for years. 

The moment I lost my thousands of dollars in a day, that moment made me realize how unrealistically I was running after my dream. That failure made me explore other dimensions of career and investment. I diverged my interest in entrepreneurship and startups. I found it an exciting and impressive way to fulfill my dream of being an investor and businessman in parallel. 

Warren Buffet quotes, “There should be more than one source of income otherwise you will fail miserably.” 

On the personal side, losing investment in such a short span of time forced me to adopt some saving habits. I have set a saving goal for 2021 just so I could make up for some of the lost investment.

Tip: There’s a way to turn your worst investment mistake into a good thing? You
just need to answer the following questions.

Question #1: what was the flow in your investment strategy? Take self-responsibility and don’t put the blame on your colleagues, improper investment advice, and poor market conditions. 

Question #2: How are you going to cover the loss to prevent it from becoming more dominant and how quick is it going to be? What will be your coping mechanism?

Question #3: What changes are you going to make in your investment strategy and is it going to be impactful in the future?

Question #4: how are you going to ensure that your new investment strategy is worthwhile? Verify your research, studies, and market history to evaluate its scope in the future?

Answering these questions may take a while and require you to do some soul searching but it will be all worth it in the end. 

Lesson #2: Utilize technology and make independent decisions

Without doing my research and using my instincts, I followed the lead of my friend and invested my hard-earned money in a scam. It was my money and it was supposed to be wisely invested. One should be independent and mature when it comes to financial management and investment. With this, there’s no harm in utilizing technology. While I am someone who likes to do things the old ways, it’s never ideal to ignore some of the gifts modern technology has to offer. 

New technologies such as big data are helping not only businesses save money but also investors in identifying trends and reducing uncertainty in investment decisions. Anyone that looks past these modern innovations is bound to repeat my mistake.

Lesson #3: Turn your mistakes into a fee 

Life is an exam and you pay the fees of it by surviving the hardships. Likewise, I took my failure and loss of dollars as a fee not a fine. I convinced myself that life has always blessed me with uncountable blessings in the form of successful investments. Why am I not able to accept one of my failures? 

The words fees give a positive impression on the mindset of the person in times of financial strains. My graduation and master’s in the business domain cost me ten times more than the loss I faced in one mistake. Rather than focusing on my one investment mistake, I should shuffle that mistake in a form of a fee for my investment journey. Investing your money, efforts, and feelings in anything will always give you endless benefits on the larger side. Just be positive and move on. 

The most important thing in life is not to capitalize on your gains. Any fool can do that. The really important thing is to profit from your losses. That requires intelligence, and it makes the difference between a man of sense and a fool.

William Bolitho

Lesson #4: Understand the significance of financial consultations

Although I was an investment analyst, yet I made a terrible career mistake. Maybe my successes made me arrogant and over-confidence. Would I have failed if I had a financial advisor with me at that time? It’s a smart move to ask for opinions, bits of advice, and to consult before investing your money and any other commodities.

Adam says: I still firmly believe most investors likely don’t need a financial advisor. But if you’re on the fence and would like a second opinion, a fee-only financial advisor can help gut check your decisions before they become solo failures.

Warren Buffet is a real-life example of how to turn failure into fix-its. In 2020, he announced that he made a humongous mistake investing in an airline of North America. It cost him a loss of approximately $US 50 billion for shareholders. He is a well-known personality in the pavilion of investors. If such a successful investor can make a mistake after years of his career, it’s normal for every one of us to move on from our financial mishandlings.

Lesson #5: Risk management and financial management run in parallel

Risk management protocols and strategies are necessary tools to protect your investments from failing. Being an investment expert, I knew the importance of risk management, yet I did not apply it in my career. It, basically, sets alarm protocols when there is a chance of potential loss. It automatically guides the investor to take appropriate actions under the risk objectives and tolerance. I am using my present investments and it has significantly helped in analysis, identifications, and acceptance of any investment hazard. 

Adam says: This has a lot of names, but it’s also called a investment policy statement. We discuss how to write one in the last lesson of my free course, The Minimal Investor.

The pay off

Sometimes in life, a single financial strain can shape your whole life and career into something innovative. The mistake I made taught me an uncountable lesson and valuable experience that would help me in my upcoming entrepreneurial startups. I imagined myself gearing up an entrepreneurial business if I wouldn’t have lost thousands of dollars. 

Everyone’s famous investor Charlie Munger shares a legendary saying: “Envy is the stupidest of the 7 deadly sins because it’s the only one you could never possibly have any fun at.”

About Mia: Mia Wilson is a financial consultant. Her focus is on small investments, managing debts, smart online shipping and finding alternate sources of income. Mia is also mother to two Persian cats.

Adam

Hi, I'm Adam! I help millennials invest to reach financial independence sooner than they ever thought possible. Want to see what you could do to reach FI sooner? You're in the right place!

1 Comment

Why not add to the conversation below? Your voice is welcome!

I lost $60,000 in a few days by not exercising my stock options in December and waiting until January. I could have made that much in December but I was in a high tax bracket and since I was retiring in January I stood to save $10,000 in taxes by waiting one month. The stock plummeted at the end of December, my options went underwater and then expired 90 days after I retired, so I got zero! I still think it was a smart plan that got torpedoed by an unlikely event, but after that I have always taken free money immediately regardless of tax consequences.

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