3 Investing Mistakes You Should Avoid

Hi there,

After my first post, LimpehZ was informed by the Wife that this is supposed to be some up-market blog about children’s fashion, children’s education etc.  Surprise! LimpehZ doesn’t care and also doesn’t know anything about fashion etc, apart from: “That looks nice on you darling” and “I think that woman over there should wear more, like sweat pants, a zipped-up jacket and a paper bag over the head”.  On education, it is my plan for K to be a world-beating computer game player.  The Wife was not impressed at all until I showed her the prize money list for The International 2014 (the World Cup of computer games).  For the uninformed folks, here’s the link: http://en.wikipedia.org/wiki/The_International_2014, and scroll down to the Results section.  I’m such an outstanding educator that K’s school principal at a parent-teacher meeting said that “her mouse skills are very good”.  Actually, I haven’t started the intensive training regime yet, so it’s somewhere in the excellent genes that I’ve passed down.

Ok. I digress. But let me tell you a relevant story. It’s about this woman I met (who is not the Wife for the avoidance of any doubt).  This woman is also not the Other Woman, the kind that wives fear to hear about.  Don’t worry, LimpehZ is a (computer game) player, but not a playboy:

There was a woman who was very frugal, who scrimped and saved every penny to give the best to her family.  She bargained at the market, scouted around for discounts on household items, pondered long and hard over the best deals to go shopping and did a lot of hard work comparing prices and quality before buying a simple thing like a pot or a rice cooker. Over the years she accumulated substantial savings.  Wow this must be a woman who is good at knowing the value of things and money.  I thought so too.

Yet one day, during that time of the month when the monthly CDP statement (it listed all her investments in the shares of publicly listed companies) was received, she showed me the statement, which was a sea of red.  It’s not the Moses parting the Red Sea kind of miraculously good stuff but it’s the reason why there are phrases called “blood in the streets”, “my investments are bleeding” etc.  Anyway if you don’t have the faintest idea about investments, green is “going good” and red is “stop you’re killing me”.

I was curious.  Why did this woman, who knew the value of the dollars and cents she saved from her marketing and shopping, strangely careless when it comes to investments involving thousands and tens of thousands of dollars?  If after 5 years of the stock market going up in a straight line, you are still losing money then something must be obviously wrong.  I asked her for further and better particulars and here is what I learnt:

1 This woman obviously didn’t do her homework

I invest in this company because I like the sound of the name [it is called 思念 in Chinese, which means missing someone.  The company actually manufactures and sells dumplings in China – soromantic right?]… because I feel lucky buying this… because I made money buying and selling this before… because my friend/broker told me to buy

I was horrified.  She couldn’t even answer the simple question of “what does the company do for its business?” for 90% of the companies on her statement.  If only she applied the same diligence in sourcing out a good pot to her investments – perhaps her investments would resemble jackpots rather than chamberpots.

2 This woman wanted to get rich quick without any effort on her part

Oh it takes too much time and effort to research companies… so I just listen to my tips, friends, brokers or feeling on whether a certain company would go up then I buy… Oh I don’t like those blue chip companies, too slow and boring and expensive… I want those penny shares, I can buy more, it moves by 1 cent I make a lot of money.”

For people who share these views, there’s a better place which gives better odds and returns – it’s called the CASINO*.  Just because you are in the stock market, doesn’t mean you are an investor.  In the same way, just because you are in a church doesn’t mean you are a Christian… just because you are in a toilet doesn’t mean you are ….

*Please do not take this as an encouragement/inducement to go to the casino.  LimpehZ has a friend almost his age who committed suicide because he couldn’t pay off his gambling debts, because he couldn’t forgive himself and because he wrongly thought that God would not forgive him.  If you have a gambling problem, come talk to LimpehZ and he will pray for you.  If you don’t believe in God or if you think that prayer doesn’t work for you, take the 100% guaranteed success way: transfer all your monies to LimpehZ and you have no money to gamble… problem solved.  Very good right? LimpehZ always got practical solutions to problems.

3 This woman had no plan (or a very very bad plan)

“If it goes up by a few cents I will sell and buy again when the price goes down to a cheaper level.  If it goes down I will hold it long term like a true investor until it goes back up again.”

This essentially means that if the woman is lucky and the price goes up, she will make a little bit of money, perhaps a fraction of her investment (a few % depending on how much she can endure before cashing in).  But if things turns bad and she picks a dud to invest in, she will hold it the same way your kid will hold their favourite soft toy/pillow/blanket etc well into their teens or even adulthood (heaven forbid).  It will stink.

It is important to learn from these mistakes and do some self-reflection, preferably on someone else’s account.

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