Lessons Learned: A Trio of Investing Mistakes to Avoid

Reflecting on the Costly Errors Made by Others to Safeguard Your Investments

Investing can be a treacherous journey, filled with potential pitfalls and costly mistakes. However, by learning from the missteps of others, we can navigate the financial landscape with greater wisdom and avoid repeating their errors. In this article, we delve into three investing blunders that offer valuable lessons for all. From doubling down on a losing position to getting caught up in speculative frenzies and selling a winner too soon, these cautionary tales shed light on the importance of careful decision-making and long-term vision.

1: Doubling down on a losing position

Investing luminary Paul Tudor Jones famously said, “Losers average losers,” highlighting the folly of doubling down on a losing position. Yet, this lesson was learned the hard way by many, including the author. The tale of InMode (INMD) serves as a cautionary example. Initially, the author’s investment in InMode seemed promising, with the stock soaring in value. However, instead of reevaluating the investment as it started to decline, the author continued to buy more shares, hoping to lower the average share price. This decision led to significant losses, as the stock’s growth outlook worsened over time. The author’s losses amounted to around 48%, despite the stock itself shrinking by only 6%. The lesson here is clear: think carefully before committing more capital to underwater positions, as losers indeed average losers.

2: Getting caught up in a speculative frenzy

The allure of quick riches often tempts investors to participate in speculative frenzies. The cryptocurrency sector, exemplified by the rise of Shiba Inu (SHIB), provides a cautionary tale in this regard. The author recounts purchasing Shiba Inu during its meteoric rise, driven by the fear of missing out on substantial gains. However, the fundamental problem with this investment was clear – Shiba Inu was a meme coin with no long-term wealth-building potential or practical use. Despite being aware of this fact, greed prevailed, leading to a poor investment decision. The lesson here is not to dismiss cryptocurrency as a whole but to exercise caution during speculative frenzies. Investments driven solely by hype are prone to rapid rises and even faster falls.

3: Selling a winner way too soon

Timing the sale of a successful investment is a delicate art, and selling too soon can result in missed opportunities for substantial gains. The author’s experience with AbbVie (ABBV) serves as a valuable lesson in this regard. Initially, the author had a clear plan to sell AbbVie shares after three years, anticipating the impact of the loss of exclusivity for its blockbuster drug, Humira. However, as the company’s strategic plan unfolded, it became evident that the market was interpreting AbbVie’s rotation into newer revenue sources as successful. Quarterly revenue was rising, and the replacements for Humira were gaining traction. Despite these positive indicators, the author sold the shares prematurely, missing out on significant gains. The lesson here is to allow winners to run their course unless there is a compelling reason not to do so. Holding on to investments that continue to perform well can yield substantial returns.

Conclusion:

Reflecting on the investing mistakes of others can provide invaluable insights and help us avoid similar pitfalls. Whether it’s doubling down on losing positions, getting caught up in speculative frenzies, or selling winners too soon, these cautionary tales underscore the importance of careful decision-making and long-term vision. By learning from the experiences of others, we can navigate the complex world of investing with greater wisdom and increase our chances of financial success.