Reading Time: 3 Minutes
Recently I was perusing the required reading material that is the Berkshire Hathaway Annual Letter.
If you don’t know what this is – basically it’s the shareholder letter Warren Buffet writes each year since 1977.
Every year it’s a hot topic of debate and there’s gems a-plenty.
This time, he discusses a lot about his mistakes which I think makes him unique in the market – in that he talks more about his failures than his successes.
Editor’s Note: Incidentally I never trust a person who only talks about their wins, never their losses/learns.
Anyone who has been investing for a while knows that the more you’re in the game, the more you realize how little you know about investing.
So today’s post is some of the mistakes which I have made on my journey, and what I’ve learnt.
They are in no particular order, but I thought would make informative reading.
Confusing Activity With Results
During my early days, I often confused activity for productivity.
I thought that by constantly trading, or monitoring spreadsheets of stocks, that I would somehow be a better investor.
This took me away from drilling in on many investments, and subsequently led me to lose over $40,000 on the stock market.
It was only when I stumbled into property investing, and the large sums involved (typically 6 figures) required for each purchase – that I truly honed in on each investment based on their merits.
“Risk comes from not knowing what you are doing.”
ASX.CDA
This one was the one that got away.
Codan Limited is a manufacturer of metal detection devices based in Adelaide.
This means nothing to you, but it does for me.
Seeing as I bought shares in them at $1.70… back in 2013.
They’re now approaching 10 bagger status… except I sold out around 70 cents in 2015.
I remember them vividly because it was the very first direct investment via my superfund (Member Direct of AusSuper).
Not only that, Codan was the first stock which I researched inside and out.
I was young, I was confident, I was a winner!
Or so I thought. Alas, the market often thinks differently. And when it halved and then some, I second-guessed myself, cut my losses and ran.
And look where they are today.
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
Back Yourself
And this is probably one of the most important lessons which I’ve learnt.
That is to have the ability to back your own judgement.
In investing, there are infinite opinions on the one event. Just look at the fallout from COVID-19! Are markets too over-heated? Rates set too low? Stimulus cheques too much?
Polarizing arguments for both sides of each question.
Case in point was when I first started buying property, I was met with fierce resistance from my own parents!
“It’s too risky” they’d say. “You’re blowing up your retirement money!” they’d argue.
Fact is, I could have started much sooner if I had backed myself.
However, I’ve long learnt to ignore media headlines, ignore opinions and most of all, to ignore the naysayers.
You have to be an optimist in your own ability to invest. Even if you’re just an ETF index-hugger – you’re backing the ability of your judgement that the market will perpetually increase.
“The most important investment you can make is in yourself.”
Time
As someone who is still relatively young (mid-30s), I am consciously aware of a paradox.
That in investing, there is a saying that time in the market is worth more than timing the market.
Sure, the earlier you start you can definitely come out better, and we’ve all heard the stories about how much Mrs X would be better off by investing Y years earlier versus Mr Z.
However, my biggest lesson regarding time is that timing the market is as, if not more important than time in the market.
Where do you think the whole be greedy when others are fearful and fearful when others are greedy comes from? That is the epitome of timing the market.
I have bought at the bottom of the market, and I have bought at the top of the market – and I can tell you that buying at the bottom is exponentially better, both for your bottom line and ego than buying at the top.
“Remember that the stock market is a manic depressive.”
Perception Vs Reality
I think as I go along on my investing journey, I am becoming more and more aware of market cycles, and especially how important investment sentiment is towards the outlook for future returns.
I’ve said this before, but I think the media is a strong leading indicator of the reverse of what will occur.
Mind you, my investment timelines are limited to the doomsday headlines of the GFC, Eurozone crisis, Trade Wars and COVID-19 so it is a very small sample size.
Of course, I’ve made countless mistakes of buying in a frenzy, being caught up during speculation (Cryptocurrency 2017/18) and of course buying high and selling low (see Codan example above).
However, the important thing to understand about being contrarian, or at least having a contrarian approach – is that no one tells you when the bottom or top is reached.
Sure you can be right, but if you’re a few years early – you run the risk of going bankrupt.
So I’ve modified my approach slightly over the years – I’d rather be rich and wrong than poor and right you see.
“Price is what you pay. Value is what you get.”
Greed Is Good
Another big mistake which I have made, is that I am just TOO greedy.
I’ve been through countless wonderful buying opportunities – from the stock market during the GFC, to the bottom of the Perth property market, back to the recent COVID-19 market lows.
Yet during each of these, I’ve always been damn silly to try and squeeze the absolute last cent out of the market.
Amongst my group of friends, I am known as a “shark”. Not because of my razor sharp molars, but because of my wonderful persistence of smelling out a bargain.
Unfortunately on many occasions, this has often led me to low-ball way too hard, and miss out on the deal.
The Perth properties are a case in point, back then the buying opportunities was ridiculous – agents were telling ME what the vendors would accept. I just needed to put an offer in…
I think a good half mil or so of equity (and increasing) has escaped me just in 2 years.
It’s far better to get in than to sit on the sidelines would be my lesson.
“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
~~~
I could go on of course, but it’s late and I need to construct the SNOO Smart Baby Sleeper, or else MrsFrugalSamurai would, as she put it “have some heated words” to my ear.
Investing is a long and arduous journey, and I write this post more so as a reminder for myself of this point than anything else.
If you found some value in it, hey let me know below!
And if you didn’t… well, here’s a picture which made me chuckle:
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