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I started investing at the age of 17. My older sister noticed that I had a lump sum of cash from part-time jobs as well as bursary awards, and advised me to invest it.
That was the start of my investment journey and I wanted to share the Top 3 Mistakes I made along the way as a beginner investor.
Mistake 1: Not knowing what the products were
My first ever investment was Dollar-Cost Averaging into the Straits Times Index (STI), as recommended by my older sister. I set up a Regular Savings Plan (RSP) to deposit $300 every month into the NikkoAM STI ETF.
While investing in the STI ETF is far from the biggest mistake most investors make, the travesty was investing into a product I had no clue about. At this point in my investing journey, I barely knew what the STI was, let alone an ETF.
A whole 2 years passed before I actually learnt about what indexes were and how ETFs work.
We can be tempted to purchase products that are recommended by others, be it from online forums, family members or insurance agents. While these advice might come from trusted sources, some products may not suit our needs or risk appetite. What I’ve learnt is that I have to take control of my own finances and investments in order to succeed.
Mistake 2: Relying on target prices
Investment brokerages and banks such as DBS, OCBC, Philips etc. publish company reports that gives a “Target Price” to different companies.
In my early days as an investor, as I started researching equities, I stumbled onto the land of analyst reports and target prices. Thinking I had landed a gold mine, I started to purchase stocks purely based on the stock recommendations of brokerages – without understanding the underlying principles that led to these recommendations.
It was by pure chance that I purchased many of the stocks in a bull market, and escaped relatively unscathed, but looking back, it was a very dangerous and risky move.
In fact, it was only after I entered university and started learning about financial accounting that I understood what the numbers and terms in these reports actually meant.
Using analyst reports can be an efficient way to analyse companies, by letting the economists and analysts do the heavy lifting. Ultimately, it is still important to form your own opinion and analyse the numbers yourself.
Mistake 3: Not sticking to a strategy
As I slowly gained some experience and knowledge in the markets, I also started formulating some rules for myself. This includes things like having a target price or a stop loss.
What I’ve come to realize is that the hard part is sticking to the strategy.
People are emotional and with the risk of potentially losing or gaining a large sum of money, all strategies can suddenly fly out the window.
In the heat of Covid-19, I held a stock that blew right past my target price and gained a meteoric 45%. However, the greed of gaining more got the better of me and I decided to hold onto my position, even if it was against my original strategy and underlying thesis I had for the stock.
In the end, the stock started tanking. I ended up with a meagre 5% gain and a bucket load of cold sweat.
Having a strategy and sticking to it reduces the chances of emotions getting in the way. I realized that it was very important for me to formulate an investment thesis of buying each stock, and to set some ground rules. I also find it helpful to write this down, in order to help me overcome ‘greed’ and ‘fear’ in the moment.
This has helped me to build a more robust investing strategy, and to prevent taking on unnecessary risks and falling into the trap of treating investing as gambling. Over time, writing down rules and executing my strategy has built my tolerance and trained my mindset as an investor.
The COVID-19 pandemic has forced us to stay home, and many have taken the chance to dip their toes into investing. Given the rise of commission free trading platforms, with an interface that makes it seem like a game especially in the USA, new investors might to tempted to trade without the requisite due diligence, knowledge and strategy.
I’ve shared my top 3 investing mistakes as a beginner investor, and I hope that others will not make the same mistakes. I hope to continue growing as an investor, and would like to learn from your stories as well!