Past performance is no guarantee of future success 

I had listened to this show and had been very lucky with my first investment; a Danish company making windmills since 1945, Vestas Wind Systems A/S (VWS:DC, VWS.DE), which no one seemed to have much faith in anymore. I had bought the stock at a share price of around 25 euro. The radio expert believed it was a goner, but I bought it as my first stock ever and sold it 1.5 years later for a share price of 300 euro! Not a bad gain at all. 

One win can make an investor brim with confidence 

So there I was, standing on a mountain of pride, believing that I could do much better than all the experts on Earth; the king of money, top of the heap. So the next time that the expert on the radio said don’t buy, I knew I should buy. So I went back to the radio show, heard about a stock that was very low and bought a large amount of these shares. This would teach me that I was not the king of money, not even close to top of the heap, and that I couldn’t beat the experts. Basically, I ended up losing my second investment ever. The stock was worth nothing, just like the expert had said. 

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

Only listen to experts when they’re right 

The reality is that experts are hardly any better at investing than the rest of us. There are a handful that may be skilled, but these are hard to find, and you can lose a lot trying to find them. There’s nothing wrong with getting ideas from experts, but then you’ve got to do your research to support your investment thesis. But even doing that research does not assure success, which is why it’s important to write down your risk plan. What will you do if the stock goes down? At what price will you act? 

Being contrarian only works sometimes 

It’s quite a feeling of satisfaction when you bet against the crowd, and you’re right. Or when you bet against an individual and you are right. But don’t let the overconfidence of such an experience take you over, as no one is consistently right or consistently wrong. Okay, well maybe your ex-girlfriend or wife. 

Mistakes in this story 

1. Failed to do their own research 

• Relied on the assumptions of others 
• Inadequately researched type of investment 
• Ignored a professional’s advice 

2. Failed to properly assess and manage risk 

• Assumed past performance would continue 

The post Overreliance on or Ignoring the Experts Can Both Do Damage   appeared first on My Worst Investment Ever.

Ignoring expert means false bottom also ignored 

My worst investment has to be when I convinced my wife (who is also my asset manager) to buy UBS Group AG (Swiss multinational investment bank [UBSG:SW, UBSG.S, ]) shares in 2009 or so after the bank had almost gone bankrupt and its shares had tumbled from 68 Swiss francs (CHF) to 20 CHF.  

Disliked bank takes on flawed new luster 

Actually, I had never liked UBS as a company, but I had thought that its share price had hit its bottom, that such a solid bank would never go under and that it would recover quickly. My wife thought it was a stupid idea but she allowed herself to be talked into the play.

Investor shuns inner voice, cheers for wrong underdog 

The share price has never really recovered (remains at 13.64 CHF at the time of writing). Which is only half the reason why this was my worst investment. The main reason is that despite not liking UBS, I was suddenly forced to wish them well, even having to follow the news about these idiots.

What was learned 

I gained two valuable insights: a) leave financial matters to my wife (a financial professional), b) only invest in companies that I actually like (their business model, passion, image, culture and the like).    

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

Just because it’s cheap 

When I was young, my mother often said: “Just because it’s cheap, doesn’t mean you have to buy it.” Many people jump into an investment because they think it’s at a once-in-a-lifetime price. When the price is “cheap”, they ignore so many factors, such as the future outlook. Think about when you’ve gone shopping and found a deeply discounted item. It was neither exactly the right color nor exactly the right size, but the price was so low it was irresistible. This type of buying is usually a waste of money. 

Write a plan and follow it 

One of the most important steps in the process of investing is to write a plan and follow it. The benefit of writing a plan is that it requires you to think ahead about what it is you want to invest in. The plan also serves as a guide that you can compare your actions to see if you are investing the way you want. So, make a plan and follow it. 

Mistakes in this story 

1. Failed to do their own research 

• Failed to test the investment thesis 
• Ignored a professional’s advice 

3. Driven by emotion or flawed thinking 

• Let emotions drive their investment decision

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