#1 – buy based on FOMO
when I first started with Japanese stock, the first 2 months there was only up. Every day was up.
went from 34,000 to 40,000 – almost 20% in 2 months.
I only invested a small amount though, so I thought maybe I need to put more money in.
around 40,000 I put in more than double my original amount, and it dropped 3% to 39,000 in a few days.
I lost $10,000 in a matter of days and I realized that kind of amount really swings my mood.
Lesson learned – don’t be in a position where a big “adjustment” can hit your emotion in a big way. If it can you have too much risky assets.
It’s normal to have a 10% adjustment even without an XXX shock, and with a shock of course 30-50% adjustment is not rare.
Also I need to keep reminding myself, don’t think you can get away when it crashes. It’s really hard to see it coming. (Japanese didn’t see the crash happening until several years inside the crash).
Imagine if it goes down 10% with almost certainty, or 30-50% sometime eventually in the future – and ask myself if I’d be okay with that. Not necessarily happy, but at least okay and not devastated.
#2 – Buying individual stocks that I don’t understand
I had some yen laying around that was going to get me 0% interest.
So beside nikkei index I also bought quite a few individual stocks that Warren Buffett bought.
In reality I knew nothing about them and when they go up, I’m happy; but when they go down, I ask myself why I bought them and what I was doing.
Buying because some great investor recommended it or bought it, is a terrible way to choose stocks to buy. I won’t be able to hold on to them during the tough times, and I wouldn’t know when to let it go if it indeed should be.
I’ve come to realize understanding the “why” of buying and holding onto the stock is crucial to mental well being as an investor.
For example now I hold Tesla because I agree with the future outlook of FSD. Also I look at a few places to get an idea what I think the intrinsic value could be. Say right now it might be around $160-180, so my buy range might be <140-150 and my sell range might be >220-240.
(I’ve realized though doing a real throughout valuation is beyond my ability and interest so I opt to just use online platforms for that instead)
I also will spend a minimum amount of effort keeping up with the news of the company just to make sure there isn’t a huge fundamental shift – for example someone else beat their FSD software or they decide to stop advancing the technology.
#3 – spending way too much time looking at news
this one I still prone to do after a while and need to keep reminding myself.
Always wanting to make sure I have made the right decisions and not having regrets, I kept looking at the financial news.
It’s important but now I try to limit myself to say 30 minutes a day in the morning to update myself, then focus on my main job and business instead of putting time and energy on the investments.
Investing in being informed and learning is important, but it has decreasing marginal return, and more time should be spend on the business to get a higher return.
Conclusion
still have a lot to learn, will probably keep making mistakes.
Important thing is try to be aware of the mistakes and make less of them, grow as an investor over the long term.
Jul23 update – the fear is real no matter how you rationalize it
I started investing in US equities around May, and again the same thing pretty much happened.
First 2 months it’s almost always up. Made 10%+ in a little over 1 month.
Good thing I didn’t make the mistake #1-2 from the first time – I didn’t FOMO and didn’t buy weird things.
The market did start turning sour last week though and I found myself spending too much time worrying and gluing myself to the financial news.
Also I did make a mistake with USDJPY – because I saw a breakout so I jumped into increasing the carry trade position without visualizing the downside enough.
I’m reducing the position now but the USDJPY had me most worried probably in the last week going from 162 to 156. 4% of my HK$500k is a $20k drop in a matter of a few days.
I am definitely still bullish on USDJPY in the longer term but indeed having these experience allows me to get the “sensation” (肌感覚) for the real thing – which is kind of painful but it’s good that I’m learning these things with small losses.
It’s not really a “20k loss” anyways as I’d still keep most of that position, and I am earning rate differentials. The real mistake was probably rushing into the 158-159 range for HK$160k and after canceling that today I’d be out maybe HK$3k or so.
Anyways to my main point – the fear is real no matter how I try to rationalize it away. The 3 things I can do is:
- Do more visualization – really calculate the potential losses in more extreme cases and reduce positions if I feel like I’m stretched too far
- Realize with experience the risk tolerance will be higher, so allow myself to be more timid at first, and forgive myself from mistakes and gain the fortitude over time. Don’t overestimate my own abilities – both on a technical level and on a mental level
- Use journal like this to coach myself and keep myself on track, as well as write down clear numbers and strategies so I am sticking to things consistently especially when things don’t turn out as expected (which I need to keep reminding myself, will happen more often than I imagine)