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The Biggest Investing Mistake of My Life

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March 04, 2012 – Comments (2) | RELATED TICKERS: CSCO , DELL.DL , AAPL

This past Friday here at Fool HQ in Alexandria, VA we had our annual Student Investor Day. Students from all over the country came to get a better look at what we do here at The Fool and why we’re so passionate about it. During the day we had a question/answer panel where we fielded some of the submitted questions to answer for those who attended. One of the questions was “What do you consider to be your biggest investing mistake?”

Now, it seems like this would be pretty easy to answer for most. You just figure out which investment you lost the most money on and there’s your answer. But the reality of the situation is much different for many. And while this wasn’t one of the questions I fielded, it did get me thinking about how I would answer. Please understand the point of this exercise is not necessarily to think about the mistakes of omission like I never bought stock in Apple. I'm not going to jump in there and say that was my worst mistake ever. By that logic most people's worst mistake might be the very same thing. No, my mistake goes back before that would have really even been a possbility.

How much have you lost?

As it stands I’ve been very fortunate in my investing life not to have lost a debilitating amount of money. Sure there are mistakes here and there and you lose a little money on some of them. But I’ve been a pretty active investor in making sure I know what’s going on in my portfolio; I mean it’s my money after all.

Superlatives are tough as it is. The biggest mistake may seem obvious one day and the questionable the next. But I think I know what mine is so far and I am so glad it happened when it did. In hindsight it’s the best thing that has happened to me as an investor really, along with the fact that I am able to recognize it and in fact learned from it.

In the beginning

As I was getting out of college and starting my career in the golf business, my father opened a brokerage account with a big-name broker who shall remain nameless. But this was well before online brokerages were setting the tone. This was a “call your order in for a $50 commission” kind of setup. Anyway, I had a couple of holdings in the account (Dell and Walgreen) that had been given to me by my father as Christmas gifts and I was enjoying my status as a shareholder of a couple of businesses. But the plain truth is I essentially knew nothing about them other than the quick “computers and a drugstore” description. My father had piqued my interest in investing when I was a kid, but he’s a doctor by profession, so even he had a lot to learn.

So the local representative for the brokerage where my account was maintained called to see if I could come in and speak with him about my goals and such. So I did. We went through the whole deal and I told him how I wanted to retire at 35 and be rich. As we went through the actual math, I quickly realized this wasn’t going to happen.

He recommended that I start with a dollar cost averaging program where I would send a check in every month and they would invest in their “best ideas.” Again, this made sense to me at the time, because what did I know really? So I signed up! The first stock he bought me into was Cisco. And yes, this was back when Cisco could do no wrong and the stock price reflected that sentiment. Again, that seemed fine with me. And this continued for a number of years until it hit me.

Like a punch in the face

I continued to mail in check after check and invest in Cisco and a handful of other companies and a mutual fund that I couldn’t tell anyone one substantial thing about other than their names and tickers. Nothing. What’s worse is that I am fairly certain that the representative couldn’t either. And to be fair I completely acknowledge that this was not part of his job. He was not a research analyst. He was an account manager getting me into the stocks that his company wanted him to get people into. I get it and I don’t blame him for anything. Again, this tale doesn’t end with me losing my shirt, thankfully.

But it could have. And I know that now. I was investing my money, the money I had earned, in something that I had no true knowledge of whatsoever. I couldn’t tell you why these companies were better than their competitors (assuming they were), how they actually made money, I could tell you nothing about management nor valuation and I for sure couldn’t tell you why or when I would sell them. I mean zippy. Yet I was in ‘em.  And when I discovered The Motley Fool a few years later it finally dawned on me my big mistake and how bad the outcome could have been.

This is it…my mistake!

My biggest investing mistake was investing in individual stocks and even a mutual fund and not knowing what I was investing in. I was taking no true accountability for my actions and no ultimate responsibility for my money. I was just taking someone else’s word for it. And the worst part is that it’s so easy to do! But it is your money, not theirs. I mean is there anyone in the world who cares more about your money than you? Speaking for myself, the answer is an emphatic NO!

I know, I know…you’re wondering “But what about mutual funds?” True, you are investing in a fund that is made up of many, many companies and you can’t possibly know what they all do and why they’re good investments. But that’s just the point of mutual funds (at least good ones). Their diverse nature exists so you don’t have to worry about it. And even still, most mutual funds still underperform. Same thing applies with any fund really. And even then, wouldn’t you want to know the main holdings, record of the fund, management, fees, etc? I know I would (at least now I do).

To educate, amuse and enrich

When I see what we're doing at The Motley Fool every day I’m extremely proud of where we are and where we’re going. Of course anyone can subscribe to one of our services and just blindly invest. They can just take our word for it and hope for the best. And I would argue that they are making the same mistake I made. That’s why we don’t recommend it. And that’s why you’ll see volumes of excellent research on what we buy and why we’re buying it (and when we sell it). The individual investor can learn more about these companies and decide for themselves whether it’s their cup of tea or not. At the end of the day if you are going to invest you’re either going to be a fool, or you’re going to be a Fool. The choice is yours. Thankfully, I learned from my mistake.

Foolish best,

Jason

2 Comments – Post Your Own

#1) On March 05, 2012 at 10:41 AM, Option1307 (29.70) wrote:

Good thoughts, and definitely something that I'm sure we've all fallen victim to at one point or another in our investing careers.

+1

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#2) On March 05, 2012 at 1:11 PM, TMFJMo (67.09) wrote:

Thanks for reading Option1307! I appreciate your chiming in.

Foolish best,

Jason

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