Fifteen years ago, I made one of the biggest investing mistakes of my life.
I was working in the City at the time. I’d got wind of a new stock flotation – a company with patented technology for queuing systems at theme parks.
Basically, users would hire a little gadget – a bit like a pager – allowing them to stand in a ‘virtual’ queue instead of the real thing. This allowed them to do other things like eat, drink and be merry – rather than wasting their time in a line.
Great idea. Indeed, the firm is going great guns today. Maybe you’ve used their devices?
Well, that may be how things stand today – but let me assure you, it’s been a long and rocky road.
The biggest investing mistake
Now, mistakes are unavoidable in this business. If you can’t cope with a loss, then stocks investing probably isn’t the right game for you.
Buying high is by far and away the biggest and easiest investing mistake you can make. We’ve all heard it, or at least we should have. The lunacy speaks for itself.
But a less considered mistake is the opposite, that is, selling too low. It mustn’t ever be a mere case of selling a position just because it’s showing a loss.
However, that’s exactly what I did, all those years ago.
The start-up that tested my patience
So, this ‘pager’ company floated at just over a pound, and I picked up a slug of shares.
Things went well for a while. But after a few months, the business started to struggle. It wasn’t meeting its targets, and investors were losing faith – even questioning whether this was such a useful concept in any case.
The stock drifted. I bought more.
Down, down, deeper on down. I kept buying, knowing that patience is required for these sorts of start-ups.
Soon enough, the thing was well and truly a penny share. And I was left holding many hundreds of thousands of the little bleeders. It all began to look like a miserable mistake…
But little did I know, my biggest mistake was yet to come!
I didn’t stick to my guns
Soon enough I’d forced any thoughts about my problem child out of mind.
The thing struggled in a range below 10p, and I couldn’t care less. I was now beginning to agree with the City’s scepticism, and I’d stopped building my position – I was philosophical about my mistake.
The one great thing about doubling up a position at low levels is that it doesn’t take much of a rise for you to get your money back. I can’t remember now, but let’s say my average ‘in-price’ was something like 20p and the thing was trading in a range between 5p and 10p.
A rise to 20p and all would be well in with the world – at least, that was what I thought.
Sure enough, after a while, the stock started to move in the right direction. It hit my average ‘in-price’ – and I sold down.
And, might I say, it was with a massive sense of relief. I had turned a loss into a break-even: “Well done me!”
There was just one problem.
I hadn’t done my homework. I hadn’t followed the story. I hadn’t seen the fantastic progress these guys were making.
The fact is, the story was now hot, the shares were ridiculously cheap and I was well out of it!
Don’t make my mistake
I don’t mind telling you that today the stock trades somewhere north of £5. And remember, I’d had many hundreds of thousands of the things.
It was a classic schoolboy error – selling low without having done one iota of due diligence.
And yet the decision to get out felt good! I felt an unerring sense of moral superiority. But it turned out to be a shocking mistake.
The lesson is this: selling low is an error every bit as dangerous as buying high.
It’s true that you’ve got to be philosophical about losers. Knowing when to accept a loss is indeed part of successful investing. It’s often right to take a loss. In fact, it can be kind of cathartic.
But never be fooled into selling, without first doing your homework.