My Biggest Investment Mistakes (to date)

I’ve noticed two trends in financial writing. On one hand, a number of people write (and blog) about a particular investment strategy, outlining in detail how they adhere to this each month, complete with graphs and progress updates, while the markets are going up.  They tend to get a bit quieter when the markets move against them.  The second trend is where writers bare their sole, confess their sins, and indicate how they have shifted course and intend to change their ways going forward.  Unfortunately, for most personal investors like me, I find little merit in either strategy. With this in mind, I thought I would spend more time writing about an investment strategy for early retirement.  To begin, I wanted to hilight some of the investment mistakes that I’ve made (so far), and what I’ve learned from them.  In later posts, I will also look at how I’m currently positioned for early retirement.  Modern Gal’s big investment mistakes:

–Buying High – late in the dotcom boom, I knew that most stocks were over-valued and did not have real revenue and profit plans.  Nonetheless, I became interested in Cisco systems (I believe the price was in the high 70′s) after listening to an analyst describe the company.  Cisco was an example of a new company that had the benefits of modernized logistics; an integrated personnel and accounting system; and forward looking management. What I learned from this is that momentum investing has its limits; and that a good company is not necessarily a good stock purchase (and the reverse is true as well).

–Selling Low – in 2003, after watching the markets hit historic low after historic low; I began to question the value in emerging markets.  After all, once a country advanced sufficiently, it graduated from the emerging category into the developed markets classification.  Although I didn’t sell at the bottom; I waited for the markets to recover some 20%, before shifting a substantial amount out of emerging markets into developed markets.  For those who are currently shifting from stocks to bonds, I think they are making the same error.

The sum of these two mistakes, led me to the two core parts of my current strategy: Index investing; and a modified buy and hold strategy.  My realization is that, although I think I know better, when it’s your own money at stake, its too easy to get caught up in momentum and general panic.

–Not reading the fine print — in mid-2007, I purchased a fixed annuity. My considerations had to do with the yield, which seemed attractive; tax shielding of a portion of the annuity payments; and a shift from thinking of growing the net worth toward securing regular investment income.  I studied the internal fee structure and restrictions; but I was not sufficiently aware of the state regulations; guarantees; and problems if the annuity issuer went belly-up.  At a minimum, I might have capped the annuity to the amount that the state insurer guarantees; or split it between two annuity companies. Although the annuity has paid each month without interruption, if I had it to do over again; I definitely would look to other options first.

see other posts at this week’s Carnival of Personal Finance