I still remember the very first time I traded on the stock market. I was so excited and at the same time convinced it was the beginning of a great series of successes. This was back in 2003. I had borrowed from a line of credit in the amount of $20,000. I told my girlfriend at that time (who is now my wife!) that I would only take $3,500 to buy shares of Power Corporation (POW.TO). The dividend payment was enough to cover most of my interest and the plan was to see it grow throughout the years. But after buying one stock, I felt kind of bored. The whole excitement after clicking on the “buy” button faded very fast. I wanted to get this feeling again. This is how by the end of the month, I had used $19,500 to invest in the stock market.
I did pretty well and don’t regret my beginning. In fact, it took me 3 years to generate a $50,000 cash down payment for my first home. The whole amount was the result of my leverage strategy. Since then, I’ve made many good trades and several bad ones. I also then switched my investing strategy from aggressive growth investor (speculative in most cases!) to patient and disciplined dividend growth investor. Keep in mind I kept the word “growth” in both definitions 😉
Fast forward 13 years later, I have now enough experience to talk about what went well and what went wrong. Would I have done things differently if I had to invest my first dollar today? Let’s take a look at my best moves and worst ones first…
A Look at My Worst 3 Investing Moves
#1 Thinking I’m invincible
I guess the worst thing that could have happened to me as a young investor was to start investing with a big boom. During my first 3 years of investing, I don’t remember losing a single dollar on a trade. I thought I was invincible… and this is when I started to become a reckless trader. I was taking more and more risk and it was paying more and more money. Until that day, when I decided to invest 10K from my savings into a penny stock. This money was meant to buy my second house a few months later but I wanted to buy a BWM on top of my new house. This was very stupid and I ended losing 5K in a single day and was left to borrow money from my parents since I didn’t have enough to buy my house anymore! Never think you are invincible because you are making money on the stock market!
#2 Trying to catch a falling knife
I love this analogy between a stock you buy during its downfall and the image of catching knife. Both end-up bloody in most cases. The trader in me has always been seduced by making contrarian moves. These are usually the moves that can bring the most gains to the table. However, they are also the ones that can kill your portfolio. For example, I tried to make money with falling stocks like Research in Motion, now called BlackBerry (BBRY). I lost nearly 40% of my investment on this one. Note that not everything that falls goes back up! Most stocks collapsing are doing so for a very good reason and they are not coming back from the dead. Let the stocks fall on the ground and look for better value.
#3 Listen to people around
In my early years, I used to discuss investing with almost everybody I knew. I’m passionate about what I do and really enjoy discussing issues on the stock market. The problem is that I used to get very hyped about companies others were telling me about. They had so many reasons why the stock would skyrocket that I sometimes believed them. I made that mistake with 5N Plus (VNP.TO) and Paladin Resources (PDN.TO). Two companies where, again I suffered 40%-50% losses. The problem is that I didn’t make my own analysis, I let others do it for me. If I had looked into those companies with a brand new eye instead of being totally biased, I would have saved lots of money! Never trust anybody else but yourself when considering buying a new company.
A Look at My Best 3 Investing Moves
#1 Use Leverage
As I just wrote in my introduction, I made lots of money in the stock market from 2003 to 2006. The best of it was that I was making money with what wasn’t even mine! I didn’t have a single penny invested in my account that was coming from my saving. At that time, I didn’t have any debt and had a relatively good salary. This leverage operation enabled me to purchase my first house at the very young age of 25 with 25% cash down. I have used leverage several times during my life and it always served me well. I think it’s easier to make money with the bank’s money instead of saving it ;-). However, you must be able to generate enough income to pay off the debts without counting on your investment return. Always use leverage when you can afford it and over a long term horizon.
#2 Building an investment process
While I made lots of money at the beginning as an investor, there was a good part of fortunate timing and luck found in my successes. Later on, I decided to take investing more seriously and I’ve since built my own investing model along with my set of 7 investing principles. I’m now making money on the stock market and I know why I make it. The buying and selling process is not just a matter of luck, it is highly predictable. Over the past few years, I have been able to beat the market because of the solidity of my investing process. An investing strategy keeps you on the right track all the time and helps you avoid making enormous mistakes.
#3 Choosing dividend growth investing as a pillar of my investment strategy
I bought this very website back in 2010 because I was intrigued by dividend investing. I actually learned how to analyse dividend stocks from the previous author of this blog and bought it to keep it going as the previous owner couldn’t write on it anymore. I was happy to shift my investments towards dividend stocks as it released me from the stress of following companies closely (read daily) and it still generates solid returns. Dividend growth investing makes it easier for investors as you can count on the power of compounding dividend payments from strong and steady companies. Dividend growth investing will open the doors to financial freedom and a risk free retirement plan.
If I Was Starting Today
If I was starting my portfolio today, the first thing I would do is to establish my investment principles. Without a clear set of rules, you can’t think of making money reliably from the stock market. Investing is not about timing or getting lucky, it’s about being patient and methodical with your money.
In a more practical way, I would definitely follow the investing guidelines from cash to investment described in this article. I don’t think waiting on the sidelines would be a good idea even if some people are scared that we will hit another 2008 some time soon. I think that today is always a good day to start investing. Therefore, I would gradually build my portfolio according to my investing principles and pick among dividend growth stocks. To be honest, I don’t think my portfolio would be that different from what I own right now as I really like my holdings!
What about you, what was your best or worst investing move over the years?