I take comfort in knowing that the construction of my current dividend investing portfolio has performed admittedly well so far. However, it doesn’t mean that it has been a smooth path constructing it these few years. In fact, I’ve made a fair share of mistakes over the past couple of years and I will be the first to admit that there will be more to come over the next few years. But experiencing these mistakes myself makes me a better investor, whether true or not it’s still unproven.
1.) Focusing on purchase price, not valuations
I used to place a lot of focus on the purchase price I bought the stocks, irregardless of whether they are considered cheap or expensive in valuations.
When the stock advances 10-20%, I will take profits and kiss goodbye to the stocks I owned. Because I was so fixated at the percentage of profits earned, I never really allow the stock to run to reach its true valuation. As a result, I missed the additional run in profits for the few stocks I used to own.
2.) Focusing on not making “realized losses”
Many people have it in their brains that they do not connect with losses, realized losses specifically. And so was I guilty of the same.
When the stock I purchased declines in price, again I refused to cut loss on it, thinking that the stock might one day come back higher. As a result, there were plenty of missed opportunities as the stock declines lower and lower. Again, this could be attributed to the lack in focusing on the valuations we mentioned above.
3.) Buying on Analyst’s call
Back in my early years of investing, I used to depend a lot on an analyst call reports, especially if I saw a few consensus report calling for a buy. I think this is a trap that many retail investors still fall into until today.
Upon reading it much conservatively, the analyst’s report is taking in a lot on assumptions which was not evident and backed by stronger evidence. For e.g, they may use a constant growth rate over the next 5 years or they may use a higher multiples to substantiate their justification in their target price. All of these assumptions are ambitious in nature and should be taken with a pinch of salt.
4.) Buying only the blue chip stocks
I used to only frame my stock list on blue chip stocks and ignore the rest, thinking that these companies are more stable and they are less subject to volatility and external shocks. And I was proven wrong of course.
Stocks such as Noble and Olam have seen their fair share of volatility in the past few years and have perhaps a lesser return on equity than other mid-cap stocks.
Now, I have expanded my lists to include the mid and small cap stocks to see if they are fundamentally good and is worthy to be added to the portfolio, depending on risk appetite and returns.
These are the 4 main mistakes that I have made over the past couple of years of investing and I hope I have learnt from it. What about you? Any mistakes you have encountered that you are willing to share with us?