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My Top 5 Investing Mistakes and Lessons Learned

Contributor Alvin Yam
Editor Vinci Palad

I’ve been investing for many years now. I’ve invested in the stock, real estate, and cryptocurrencies. I’ve also worked as a financial planner and seen many investors lose wealth, mostly due to giving in to emotions or FUD (fear, uncertainty, and doubt).

Although this post is a bit painful for me, I believe it’s important to reflect on ourselves and learn from our past mistakes. This also applies to us as investors.

Here are the biggest investing mistakes I’ve made over the years.

 

1. Giving in to the Media’s FUD

I like to consider myself a prudent investor who follows a balanced and diversified portfolio strategy. However, I made a costly mistake at the end of 2022 when I let the media and their narrative of pessimism influence my investment decisions.

The year 2022 was a challenging and turbulent year for the U.S. economy and the stock market. The pandemic, the inflation surge, increasing interest rate hikes, supply chain disruptions, and political uncertainty weighed on investors’ minds.

 

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The S&P 500 ended the year down 20%, its worst performance since 2008. The Nasdaq plunged 33%.

Going into 2023, many analysts constantly appeared in the media, predicting that the U.S. would enter a recession in 2023.

They pointed to data and argued that consumer spending, business confidence, and employment data all pointed to signs of weakness.

In the back of my mind, I wondered if all the experts were simply wrong and that I should just stick with my investment plan.

But in the end, I gave in to my doubts and questioned my 100% allocation to stocks.

I convinced myself that I should reduce my stock exposure and shifted some of my portfolio to “lower-risk” assets, such as cash, gold, and U.S. Treasury bonds.

I thought I was being prudent and cautious, but the year 2023 proved me, along with many other investors, wrong. The U.S. economy and the stock market rebounded strongly from the slump of 2022 and went on to reach new highs.

In hindsight, I gave in to the pessimism that the media fed me, and this decision limited the gains in my portfolio. I should have just stayed with my allocation instead of second-guessing myself.

The financial media tends to sensationalize doom and gloom, especially regarding the economy and the stock market.

They know that stories that create FUD can draw more eyeballs and clicks. Try to ignore all the noise, stay focused, and stick to your long-term strategy.

2. Choosing to Flip Homes vs Being a Landlord

In 2004, I was living in Los Angeles and befriended Carson, a real estate broker who also ran a mortgage broker company. Carson was an experienced and skilled home flipper in Los Angeles.

He encouraged me to buy investment property, as I was new to the real estate market. He taught me the basics of investing in real estate. He showed me how to locate, finance, bargain, remodel, and sell homes for profit.

Carson had a system, and he showed me how to find lower-priced homes in less fancy parts of the city that needed some renovation and had eager sellers. These were the properties where you could spend a few thousand to fix and resell for a profit. In those days, getting qualified for loans was easy, and banks had lenient lending standards.

I soon bought my first condo in West L.A. Despite working full time, I spent nights researching properties and weekends viewing a dozen potential homes to flip.

I followed Carson’s strategy and flipped four properties in a year. The next year, I flipped eight properties. By 2007, I had made great profits from short-term home flipping, but I sensed the market was changing. Homes were taking longer to sell after listing, and buyers were not bidding up homes as aggressively. I started to get nervous about the market’s direction. This was when I decided to stop buying and start reducing the listing prices of my properties. The housing market began coming down soon after and eventually crashed around the country.

By that time, Carson had a portfolio of over a dozen properties, but instead of selling, he held on to all his properties and began renting them out. Being a landlord can involve a lot of time and work, but this was Carson’s trade.

Carson chose to play the long game while I stuck to my home-flipping mentality for quick gains. That was a costly mistake. If I had done as Carson did and chosen to become a landlord, I would have made much more from all the rental income produced and the properties’ appreciation over the years.

At the time, I reasoned that being a landlord was too much work, and I didn’t want to take calls from tenants at night to deal with broken toilets. In hindsight, I could have become a landlord but outsourced most of the property management work to property managers.

3. Passing on Investing in a Friend’s Start-up 

In 1999, a good friend launched a new startup with some partners. Their startup would leverage the internet to provide legal documents and online legal services to the public at lower prices than traditional lawyers.

They were doing their first fundraising round and asked all their friends and family to invest. The dot-com bubble was a period of rapid growth and speculation in the Internet sector from the late 1990s to the early 2000s.

This was the time when the internet was getting hot, and any company with a dotcom in its name attracted investor money. For those who lived through that period, you might remember some of those companies, such as pets.com, Webvan, and eToys.com.

The dot-com bubble period was exciting because everyone believed that the internet would change business and how we communicated. His startup sounded exciting, but it also felt very risky. The internet was still in its heyday, and I didn’t understand its potential or how an unproven online legal document company would succeed. In the end, I passed on investing in his startup.

Soon after, the dot-com bubble burst and wiped out a lot of companies and investor wealth. But my friend’s startup stayed lean and survived. They were able to raise more funding and eventually began growing their online business.

Today, you’ve probably heard of or used LegalZoom, which is the leading online platform for business formation in the U.S. and has helped millions of customers since its launch.

Had I invested a few thousand dollars in LegalZoom then, I don’t know exactly how much my investment would be worth today, but it’s safe to say it would be a significant amount. Sometimes, the investments you perceive as high-risk can end up making the biggest difference in your portfolio.

4. Selling Apple Stock in 2004

I have always been a fan of music and technology, so when I heard about the iPod, I was intrigued. The iPod was a portable music player that could store thousands of songs on a device that fit in your pocket. I bought an iPod in 2003 when the third-generation model was released. I was amazed by how easy it was to use and how great it sounded. I could sync my music library from iTunes, create playlists, and listen to my favorite songs anytime, anywhere.

The iPod was the reason I also decided to buy some Apple stock in 2003. Apple was not doing very well at the time, as it faced serious competition in the personal computer market, as their personal computers only had a 3% market share. I decided to buy Apple stock, viewing it as a short-term speculative investment, not planning to hold it long-term.

I was thrilled to see that Apple stock performed well over the next year, and I decided to take my profits and sell them in 2004, thinking that the stock likely didn’t have much more upside.

Steve Jobs announced the iPhone on January 9, 2007, and, as we all know, the rest is history. The iPhone was an instant hit and boosted the sales of other Apple products and services. Since then, Apple has become the most valuable and influential company in the world, and its stock price has increased by over 4,800% since 2003, with a market capitalization of over $2.8 trillion.

After the release of the iPhone, I re-looked at Apple and believed that they would continue to innovate and keep growing. Since then, I’ve been buying and accumulating Apple stock over the years; it’s one of the core positions in my portfolio. But this time, I’m holding a long-term investing view.

 

5. Not Investing More in Bitcoin

I’ve always enjoyed taking a hands-on approach to investing and have earmarked a small portion of my portfolio for high-risk investments.

2017 also saw a global Bitcoin mania, as millions of people around the world became fascinated and began following the cryptocurrency trend. Bitcoin became a topic of discussion and debate in the mainstream media and on social media.

The incredible upsurge in interest led me to do my own research. I discovered that blockchain technology was going to be much bigger than I imagined and would enable the creation and transfer of digital currencies with the potential to transform society. I invested a small amount of Bitcoin in early 2017.

The year 2017 was a historic and turbulent period for Bitcoin. That year, its price reached new highs, and its adoption and acceptance began increasing. Bitcoin’s price started the year at around $1,000 and reached a peak of nearly $20,000 in December.  Eventually, Bitcoin went on to reach an all-time high of around $69,000 in November 2021 and later crashed down to around $16,000 in November 2022.

Bitcoin is a volatile cryptocurrency that can experience huge price swings in a short period of time. I knew investing in Bitcoin was high risk and was comfortable investing what I was willing to lose. Despite all its volatility, Bitcoin has been a great investment for me, as I’ve seen its value gain over the years.

I later became friends with someone who invested about $10,000 in Bitcoin in 2015. Today, the value of his bitcoins is over $2 million. Sometimes, I think about how much more my portfolio would be today if I had invested more. But I try not to let this bother me too much. Instead, I remind myself that I was fortunate to be able to invest in Bitcoin then.

Final Thoughts

Biases can help us deal with the complexity of the world, but they can also cause us to make mistakes in our judgment. Over the years, I’ve come to recognize my biases better and try not to let them impede my decision-making.

I’ve come to be more aware of my emotions, too. We like to think that we are rational and objective, but our emotions are our primary diversity.

We must learn to manage our emotions and challenge our biases and assumptions to improve decision-making. If we can do that, we’ll make better decisions as investors.

Hindsight is 20/20, and I cannot change the past. However, I’ve come to learn that how one approaches investing in any asset, whether with a long-term or a short-term perspective, can greatly impact one’s financial success.

What about you? I’d like to hear about your investment mistakes and lessons learned over the years.

 



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13 thoughts on “My Top 5 Investing Mistakes and Lessons Learned”

  1. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  2. Alvin don’t worry man- I think points 2-5 are more hindsight bias, not mistakes. Your thinking in these points were sound so don’t beat yourself up about it. You had no idea legalzoom would go bonkers! You had no idea bitcoin would continue to rise! There is a book by Annie Duke where she cautions against “resulting” where you let the results dictate whether you made a bad decision or not. Don’t do that! If your thinking was sound, who care if you didn’t invest in your buddies Legalzoom.

    Point 1 was truly a mistake. Make sure your asset allocation is now aligned with your risk tolerance. The stock market will crash again just like it did in 2022- don’t sell equities low my man- it will bounce back up in time.

    Reply
    • In addition to this being an awful article, you are correct that this is just hindsight bias. Also, point 2 is crazy. Money is fungible. If you flipped houses and made a profit you could have invested that money into something like index funds or a syndication. The answer might not have been go long term rental, it might have been to not blow the profits and instead invest them.

      Reply
      • Hi N,

        I used the profits from home flipping to invest in stocks. Back then, I wasn’t a disciplined investor and didn’t have a long term mindset, which I’ve changed over time.

        Best,
        Alvin

        Reply
        • Then why was selling your homes a mistake? What was the return on the stock you bought? What return do you think you could have gotten from renting?

    • Yes, this blog is becoming garbage. This is a terrible article.

      No serious person considers Bitcoin an investment. . . Referring to “FUD” without saying what it is. . .Just crap.

      Reply
      • Hi Jim,

        We’ll be sure to write out acronyms like FUD (fear of missing out) going forward.

        The classification of Bitcoin as an investment is an ongoing debate. Some institutions such as Fidelity and JP Morgan classify it as an alternative investment.

        Best,
        Alvin

        Reply
        • I don’t want to beat a dead horse, but fear of missing out is FOMO. I looked up FUD, which stands for fear, uncertainty, and doubt.

    • I do, but what I found most disturbing is that when Leif was getting ready to sell his website he didn’t tell any of his dedicated followers. I guess he didn’t think we were smart enough to notice the shift in content of the website….from a disgruntled dedicated follower.

      Reply

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