Early Investment Mistakes You Won’t Find In a Book

I started retail investing back in 2018 and got off to a bumpy, painful, losing start. Once I’d read the reviews and identified the cheapest and easiest app to use for a beginner I started buying equities and a couple of times without realizing it: futures. As someone who started with the principle of “buy what you know” I bought digital companies, a profession I’d worked in at a high level. Everything that follows is a cautionary tale of recklessness and naivety rolled into one. I’m sharing the mistakes I made in my first few weeks of trading on an app so readers don’t have to make these errors. I’ve smuggled in one thing I did that was financially right, but perhaps morally wrong. This is embarrassing, there’s no sugar coating it, but if you’ve just opened a trading account I hope that this saves you a few bucks.

  1. Leverage is something I definitely should have googled. This is not your typical lesson #1. Normally that would be ‘start with a strategy and be disciplined’ (I read that article, it didn’t help). Leverage is essentially a way of borrowing money when making a trade to multiply the value of that trade. If I’m investing $100 and I select a leverage of X10 when making the trade I’m borrowing funds to make an overall investment of $1000. I did not know this at the time, and it didn’t matter to me because I didn’t select leverage. However my platform had a default leverage of X5. As silly as this sounds the first three trades I bought thinking I was investing $1500 actually represented an investment of $7500 and I didn’t event realize it. I realized it very quickly however when the stocks dipped in a major way and I lost half of my capital — the stop-loss was 50% and this is how I learned of another default setting I hadn’t noticed or understood. Lesson learned: don’t use leverage as a beginner and check your defaults.
  2. I was buying FANG stocks, I bought Facebook, Google, Amazon and not Netflix (at least not initially). When I bought them I didn’t know they were called FANG stocks, not that it matters, but this shows how green I was. I bought them because I’d worked in advertising and I knew how powerful Google and Facebook were and how ever more powerful they’d become. Amazon I bought because they had an advertising platform but they made so much money everywhere else it wasn’t a big deal to them, which impressed me greatly seeing as Facebook’s entire business model was built on this at the time. Netflix I skipped because they weren’t connected with advertising so I put that firmly in my “not what I know” box. Three days after I made my initial investments the Cambridge Analytica story broke and the digital market tanked. Lesson learned: read the news.
  3. Stop Loss. I had no idea what this meant, as a result my money was very quickly worth much less than a couple of days before the crash. Stop loss is like a safe word but you use it to guard yourself from anticipated pain in a downturn (bear market) as opposed to when you’re actually in maximum pain (broke). If you have a stop loss of 5% and you buy a stock the day before a huge crash you are able to automatically close your position for roughly a 5% loss and get out before you get financially destroyed. I had no idea about this facility, my savings plummeted. At this point I made my first sensible investment decision and perhaps my last of that year: I bought more shares. I kept faith in my strategy after all, and kept buying every 10% decline. At one point in 2018 I owned FB shares at $133. Today if I still had them they’d be worth $245 each. I don’t obviously but more on that later. By this point I’d noticed the default X5 leverage setting as for every dollar I should have lost I was losing $5 and I turned that cheeky little setting off! Lesson learned: buy small at the beginning, your mistake may not be as bad as mine but you will make mistakes regardless, so start small.
  4. Getting something right. After Cambridge Analytica more revelations broke. Apparently outside influences had effected the US election and they’d done this through Facebook ads. The plummeting stock price continued, but to me this made me see data-targeted ads in a new light. I knew the big digital platforms had improved their data harvesting and targeting but until this moment I hadn’t realized exactly how good they’d got at it. I knew that while everyone slated the platforms for allowing this to happen marketers were thinking to themselves “if you can change an election by advertising on these platforms imagine how easy its gonna be to sell shampoo”. I knew revenue would increase, so I bought more. The stocks started rebounding, all of a sudden I was reclaiming my losses, and even using leverage on purpose and it was working out. I got very confident at this point and this is when I thought to myself, “let’s give Bitcoin a go”.
  5. Chasing momentum. Bitcoin — what was I thinking? I’d read if you believe in the technology don’t worry about the volatility it will come through for you…one day. The previous December Bitcoin had been worth $20,000 per coin. The September prior my partner had talked me out of investing in it when it was worth much less than that. It still comes up every now and then to this day. I eventually invested in Bitcoin following the peak and subsequent crash and not during either. I also invested in the offshoot Bitcoin Cash, Ether, XRP, Neo and eventually something called EOS, there were others along the way but I only have an investment in the last one EOS left, it is approximately 80% down. The problem I had is that I was chasing momentum each day, it would go up and I’d buy some. It went down, I’d panic and sell. Overall this is a great way to destroy your capital. Staying cool I would have doubled my investments, as it was I came out about flat, not including EOS, and looking back I’m amazed I didn’t lose more. Understanding the concept of momentum would have kept me safer, momentum is a mathematical series of patterns (I know this now and will write about it in future chapters) and it is not something that changes direction just because the price suddenly starts flashing red.

I have plenty more mistakes to share, enough to fill a book and I’m happy, if somewhat embarrassed, to keep sharing them. Retail investing is now a huge market in itself, in fact more people have opened retail investing accounts in the last few months than ever before in history. I’m guessing some of you lost a chunk today, and will do so tomorrow also. I’ll try to minimize it by sharing my cautionary tales for beginners.

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Jack Black

Jack Black

Newbie investor, former digital dude, future something.