As an excited 17-year-old who had saved up a little more than US$2,000, I wanted to buy some stock. I held small amounts of two other stocks at the time, so I purchased Coca-Cola shares with the money I had saved.  

Ignorance is not bliss when missing big future interest 

I don’t know what I was thinking when I sold the Coke shares around six months later, ignorant of the importance of “buy and hold” investing and the magic of compounding interest. I lacked any education about the market and would have to learn as an adult about compound interest and “buy and hold” or “passive” investing. 

Could have made 4,000%+ with investing know-how

It was a major error to sell the shares. Using a compounding calculator, that US$2,100 would be worth US$99,880 today. As another illustration, in 2012 Coca-Cola reported that just one of its $40 shares purchased in 1919 (with dividends reinvested, meaning compound interest comes into play) would be worth US$9.8 million today. 

Ignoring compounding means broader portfolio loss 

At the time, if I had known about the power of dividends and compounding them back to reap interest, I would have amassed a decent-sized portfolio a lot sooner, which means more time over my lifetime for compound interest to work its magic.  

I recommend that all “newbies” read the top books on investing, as well as more simple sources, such as Kiplinger’s Personal Finance, and Money magazines, to educate themselves. 

Andrew’s takeaways – Avoid these errors to become a better investor 

Not investing can be as big a mistake as investing 

Probably the most valuable lesson in investing is to stay invested over a long period. Give the compounding effect time to work in your favor. Most people get this wrong. They fail to realize that the benefits of compounding start to accrue only after 20 years. Very few people see their time horizon in decades; most see it in days. 

The importance of education 

Most young people are not taught the principles of compound interest and therefore never take advantage of it. Our society would be much better off if we just invested $10,000 into a passive fund at the birth of every child. At 8% per year, this would grow to be $1,000,000 by the time they are 60 years old. Kids around the world would be millionaires upon retirement. Unfortunately, very few people have that foresight. If you don’t read this, you could end up living “in a van down by the river”. 

Mistakes in this story 

1. Failed to do their own research 

• Inadequately researched type of investment 

2. Failed to properly assess and manage risk 

• Had no exit strategy for when things went wrong 
• Failed to set a stop-loss and follow it 

3. Driven by emotion or flawed thinking 

• Failed to invest in a familiar, good idea 

The post Hard Lesson About Compounding – Could Have Been Better with Coke appeared first on My Worst Investment Ever.

Serious case of following the bitcoin herd

This trade was 100% driven by fear of missing out as the price of Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP) kept surging higher. I started to feel dumb as I watched the price of BTC go from a few hundred to many thousands and then to 16,000 dollars, and I had yet to take any action.

So, I waded in. I remember the intensity; by the end of that day I had learned how to set up an account on a crypto exchange, how to deposit money in that account, and how to create and use the “wallet”. By that evening, I had sizable investments in BTC, ETH, and XRP.

Inadequate research about type of investment

Only then did I start researching about crypto-currency’s utility and encountered many articles and charts about the similarity between the crypto craze and “tulip mania” (when speculators during the 17th Century’s Dutch Golden Age traded tulip bulbs for extraordinary sums of money until, without warning in February 1637, the market for them spectacularly collapsed).

Fear over holdings leads to loss of sleep

I think you can see how lucky I was. That BTC price level I mentioned was near its record high. A couple of weeks later, that price started to tank. I began checking the prices almost every hour and had trouble sleeping. So, at the end of week four from the first day of my investment in the currency, I sold everything.

I took a loss of about 20% in BTC, but the huge gains in ETH and XRP saved me. I may be wrong many years from now, but now I can sleep again! Today, I still have some positions in these coins, but they’re so small that I think of them as lottery tickets rather than a proper investment.

Too fast, too furious and caught up in FOMO fever

To recap what I learned was not to be swept away by the fear of missing out, realize that fast decisions are often wrong decisions. I realized how lucky I was and learned from this only when a good friend of mine lost a couple of million on his XRP investment a couple of weeks after I exited. Finally, always do thorough research!

Andrew’s takeaways – Avoid these mistakes to become a better investor

Take the time to use your evolved and informed brain, rather than your base feelings

To be successful in investing means to accumulate wealth over a long period. When you are driven by fear or greed, you overlook things and don’t have time for thoughtful analysis. Slow down and invest right, take the time.

Investing without research is like jumping off a ship without knowing how to swim

Of course, if you follow what everyone else is doing, without question, you won’t even know where you’re going. You don’t have to act against the herd, but you should do your own research to understand where the herd is going and why. Through this research, you also want to understand what factors would drive you to break away from the herd.

Investing is hard. I can’t tell you the number of people who have sought my advice about investing. When I asked them how many books they had read on investing; the answer was zero. When I asked them how many academic papers they had read, the answer was zero. Or, how many courses they had taken, zero. Investing without doing research is just playing with fire; with gasoline and fire!

Plans are needed as much for exiting an investment as entering

The most important part of planning is planning for when things go wrong. When things go wrong with an investment, it usually means the price is falling. Set your plan about what you will do when that happens. It will be hard to stick to that plan, but if you have no plan, you will just be driven by emotion.

Mistakes in this story

1. Failed to do their own research

• Inadequately researched type of investment

2. Failed to properly assess and manage risk

• Failed to set a stop-loss and follow it
• Had no exit strategy for when things went wrong

3. Were driven by emotion or flawed thinking

• Let emotions drive their investment decisions
• Were driven by FOMO

Learn about the six ways you will lose your money and how to avoid them here.

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