My $263K DIY Investment Lessons

My $263K DIY Investment Lessons

My $263K DIY Investment Lessons
 

In 2017, my net worth increased by $195K, the year before that, my net worth increased by $322K. For the last two years, I made myself half a million dollars richer. When you read these two sentences, you must be thinking that increasing my net worth was relatively easy. Furthermore, my journey to build a net worth of $2M had always been very rosy and uplifting.
 

In reality, my my million dollar journey experienced quite a few ups and downs along the way. What you’ve read for the past year and a half on my blog just happened to be the uptrend of my journey. Since I’ve been sharing mostly the positive side of my journey because of the stock market uptrend, I thought that it would only be fair and educational to share the not so positive side of my journey too.
 

DIY Investment Lessons Are Learned Through Mistakes

In my opinion, I believe that it’ll be more valuable and you’ll learn a lot more if I share the DIY investment lessons that I experience through the negative parts of my financial journey. During the last decade of my DIY investment journey, I experienced a total of three down years where I lost money in the stock market. In those three down years, I lost a combined $263,164.23.
 

To some, that’s a boatload of money and it is. My hope is that by sharing my experience, my readers will benefit and learn from my mistakes and avoid making the same investment mistakes themselves. As I have been preaching, “it’s a lot cheaper to learn from someone else’s mistakes than to experience the mistakes yourself.” So without further ado, let’s take a look at what I had screwed up during the last ten years of DIY investing and what you can learn from my mistakes.

Following The Investment Advice Of Talking Heads On TV

When I first started investing, I couldn’t change the TV channel on my TV. Somehow, any TV that I turned on in my house ended up tuning to the Business News Network. I was obsessed with business news and updates. Every day, I would be hearing something different and some of the opinions/predictions were outrageous now that I thought about it.
 

When the price of gold was about $2,000 an ounce, some gold bug portfolio managers predicted that gold will rise to $5,000 an ounce. When crude oil price was $147/barrel, some resource portfolio managers predicted that it’ll rise over $200/barrel. When crude oil price was $35/barrel, some resource portfolio managers predicted that it’ll drop to $10/barrel. Does this sound familiar?
 

Admittedly, I made the mistake of buying into some of the stories presented by these talking heads and purchased some of their recommended stocks. As a result, my portfolio got pummelled when the oil downturn started in late 2014. That was how my investments lost almost $100K in 2015. Just keep in mind, the so called investment experts on TV always have a personal agenda. Take everything they said and presented with a grain of salt.

Not Diversifying My Investment Properly

One of my investment mistakes was not diversifying my investment enough. As a Canadian, I bought mostly Canadian stocks because I was seduced by the dividend tax credit when I receive dividend payments from Canadian eligible companies. In addition, the management fees for International stock ETF are higher comparing to Canadian stocks ETF. For U.S. stocks, you get hit with the 15% withholding tax if you received dividends from U.S. companies in your non-registered account.
 

All those factors contributed to my investment portfolio being heavily concentrated in Canada. I have very little exposure to U.S. stocks and almost no international market exposure. When the U.S. market was on fire last year (gaining 20%) and the international market didn’t perform that bad either, my investments underperformed big time.
 

The lesson here is to make sure that your investments are properly diversified. Spread your ownership to different regions and across different industries. These ways, you can achieve balance and when one region or industry is not performing well, you have others to pick up the slack.

Not Knowing When To Sell

Let’s face it when any of your investments are losing money, you’d hate to sell and lock in the losses. I hate doing that too. Unfortunately, sometimes, the decision not to sell when the stock keeps on falling, cost me a lot of money. Over the last decade, I had owned five stocks that either went to zero or close to zero. I ended up losing most of my invested capital in those stocks because I did not know when to sell.
 

When I am talking about when to sell, I mean sell when the fundamental of a business changed not selling out of fear of the financial crisis back in 2008. One good example is Sears (I don’t own the stock), they definitely failed to adapt when their business environment changed. Hence their stock prices suffered. If you own Sears stocks, you have my sympathy.
 

Until now, I still have trouble deciding when to sell a stock when it’s dropping precipitously. This is still one of my investment weaknesses and I will have to do better on this front going forward. Hopefully, I don’t to make too many decisions on this front.

Doubling Down When The Stock Goes Down

From time to time, some of the price stocks that I own would go down. When that happens, it seems like the stock is on sale. So what do I do? I back up the truck and start doubling down on the stock thinking that I will be getting a great deal.
 

There are a few problems when you double down on a stock. The weighting of this stock or sector will increase, which means it’ll have more influence on your annual returns. You’re ignoring the reason why the stock is going down. You are also at risk of throwing good money after bad money.
 

On quite a few occasions, this had happened and I ended up losing more money. What I am doing now is to try to be more discipline and not to have the weighting of one stock or sector be more than a certain percentage of my portfolio. This way I will reduce the risk of a stock or sector dictating my portfolio return. I am also minimizing the risk of using good money to chase after bad money.

Concentrate More On Income Rather Than Growth

In recent years, I have been focusing more on investing in dividend-paying stocks and building a sizeable passive income stream. With this focus, I have become a bit more biased towards companies with higher dividend yields. As a result, I am sacrificing some higher growth stocks and direct more of my investment money to lower growth stocks.
 

The problem with concentrating on stocks that pays a higher yield (more than 4%), these stocks don’t often grow or increase their dividends. Even worse, some of these higher yielding stocks even cut their dividend. As a result, my goal of accumulating more dividends to increase my income backfired. Instead, I may even get fewer dividend payments going forward.
 

To ensure that my future income stream is stable and growing to at least be at par with the rate of inflation, I tweaked my dividend stock selection criteria. The stocks must have a good history of dividend payments, a good potential of future growth and of course, a track record of increasing dividend payments. Can’t avoid all the risks, but at least I know that the company that I purchase had an excellent dividend payment history.
 

Year My Return Amount My Return % Canadian Market Return U.S. Market Return
2008 ($20,858.43) -19.07% -34.97% -38.91%
2009 $44,524.14 +34.51% +30.69% +23.45%
2010 $55,621.30 +20.70% +14.45% +12.78%
2011 ($143,051.19) -29.97% -11.07% 0.00%
2012 $65,485.03 +15.78% +4.00 +13.41%
2013 $88,768.14 +18.28% +9.55% +29.60%
2014 $12,990.16 +2.10% +7.42% +11.39%
2015 ($99,254.61) -14.76% -11.09% -1.16%
2016 $195,191.56 +28.50% +17.51% +10.02%
2017 $72,921.69 +7.42% +6.03% +19.42%

Note: Market returns do not include dividends

Last 10 Years Of Investment Returns

From the table above, the cumulated return from my ten years of investment, my money/savings earned a net amount of $272,348.99. Of the seven years that I made money, the total was $535,513.22. Once again, for the three years that I lost money, I lost a total of $263,164.23. As you can see, making money about 70% of the years that you invested, don’t always guarantee that the net earnings are about 70% of the total amount of money that you’ve made.

My Two Cents

Investing your money takes a lot of time and patience. There will be ups and there will be downs. The important thing to remember is every mistake is a learning experience. You will make mistakes along your financial journey and that’s okay. Every time that you make a mistake, just remind yourself that “failure is the road to success.”
 

So readers, how do you invest your money? Do you have fear of losing money so that you don’t take enough risk to grow your money? If you are a DIY investor, do you have any DIY investment lessons that you can share with us?

 

Leo T. Ly, Canadian Personal Finance Blogger/Enthusiast and a Realtor Living in the Markam, Ontario, CanadaAbout Leo
I am a Canadian personal finance blogger/enthusiast and a Realtor living in Markham, Ontario, Canada. I built a net worth of a million dollars over a ten year period. I did it by being a disciplined saver, taking advantage of income tax rules and borrowing money to invest rather than for consumption. I am often excited to take advantage of free money from employers and governments in addition to building more passive income sources. After accumulating my first million dollars, I am now embarking on a second journey towards achieving financial independence. On this journey, I will strive to increase my net worth to two million dollars and retire by the age of 48 - Freedom 48. Come along and follow my journey on Facebook, Twitter, Pinterest or Google Plus.



There are 24 opinions expressed on this post.

  1. It’s one thing to listen to one’s experience and learn from it; its another to act. Humans don’t tend to listen to advice or other failures. It’s only when they try it themselves and realize that they failed do they really learn. We won’t feel any pain until we experience. Even so, sometimes I find that when they felt the pain, ppl tend to repeat the same mistakes due to greed and instant gratification. I can admit I’m one of them at times lol!
    fin$avvy panda @ finsavvypanda.com recently posted… 5 Reasons Why Starting a Blog Will Change Your Life FinanciallyMy Profile

  2. I have always been intrigued by the stock market and how a person can earn from it. I’m not business savvy and taking a risk for me is like gambling. I like how you take risks, keep an open mind, and reevaluate- without giving up. That’s perseverance. My aunt is into the stocks- she’s living a very comfortable life here in the Philippines and goes back to the US for taxes. After reading your article, I think I should look into buying stocks as well and ask my aunt to be my mentor.

  3. Everything we do is a learning experience, especially when it comes to investing. Looks like you hit on a bunch of the fundamentals of portfolio management. Go into investing smart and with a plan, drowned out the noise and keep to your strategy, diversify in many different ways, and keep to the fundamentals. Thanks for sharing.

  4. My husband did think about investing our money. I just did not like the unpredictable. I like to know that I do whatever I can to make my money grow, not by chance. But I did hear great stories about investing and how “easy” it is to make money.

  5. lessons learned by everyone including the folks on Wall St & Bay St.

    Predicting the market futures is impossible as is trying to time the market.

    Even the so called ‘smartest’ computerized predictors or analysts get it wrong, not just Jane & Joe Public

    This past week events, Jan/Feb 2016, 2008/09 meltdown, all the times & corrections before that, each market correction/crisis, Black Monday 1987, high interest rates, high unemployment.& when gold was $30 an ounce.. the list goes on.

    When what’s happened recently you think folks old enough would have remembered that past mistakes, most dont, many get shell shocked & scared.

    My advice is to sit tight, wait for the calm, dont all of a sudden sell off all your positions

    For those with money, this is a good time to buy, even though ‘no one knows where the bottom is’

    What would I buy in terms of single picks? I would buy Canadian blue chip institutional stocks (AKA) Banks, Insurance, Telecom & Transportation. These are ones that have been around since the dawn of time.

    Canada is boring, yet its ‘steady as you go’ safest as it gets, compared to the US, where its HODL

    For those that believe investing in the US markets is where its at because they have the biggest gains. Its reward for risk or those with nerves of steel

    disclaimer: the above post is from a 70 year old retired senior age that has witnessed the past 50 years of financial/economic turmoil

  6. This is really informative and helpful! I would have no idea how to take care of stocks and investments myself. I agree that I proably wouldn’t know when to sell either. I know of some people that have started getting into this, I’l be sure to pass your advice along. Thanks for sharing!

  7. Personal finances are a critical skill that we all must learn to manage. Happy to read about your mistakes since they are the basis of any victory we may achieve. Being able to manage our finances well and plan comfortably for the future, can prevent us from being financially abused and living a life without financial stress.

  8. I have always been so scared to invest because of the scare of losing money horribly. This is some great advice and a great story of how you did it.

  9. Great post Leo
    Im guilty of a couple of these. Holding stocks and doubling up when they are down. Not super diversified geographically and enbridge is a huge holding of mine.

    Its all about learning lessons. I recently tried the dope sector getting in on a penny stock that was 40% bellow its high. Well its wayyy down. Ill hold it as they are still making moves but once i break even ill sell. Sucks not getting dividends while invested.

    The money i used for this purchase was earmarked gamble money… so far im losing…. lesson learned.. stick to solid dividend companies.

    Thanks for sharing your lessons!
    Cheers
    Rob
    Passivecanadianincome recently posted… Buys, Sell and RaisesMy Profile

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