“Someone’s sitting in the shade today because someone planted a tree a long time ago” – Warren Buffett
Happy New Years WF Family!
We are just one week into the new year and I am sure there are plenty of goals that you hope to achieve in 2019. One of those goals may be to start investing in the stock market for the long-term!
If that is the case, I have compiled four mistakes that are common amongst new investors. I have been in the long-term investing game since I was 18 years old, and at 23, I am still learning how to master my mentality when it comes to my tailored investing style.
For those of you who are new to investing, you may have a few expectations that could be realistic or imaginary. You may also expect yourself to be wise in the way you choose your companies or invest, but once you are putting your real money into it, things can change, quickly.
Anyhow, here are a few mistakes that you should stay away from if you want to build long-term wealth!
Expecting To Get Rich Quickly
Movies like Wolf of Wall Street can sometimes get into the minds of young investors and get them to believe that in a year of investing, they will be charting jets and buying Rolexes for themselves and their pets! Although it would be entertaining to have matching watches with your pet dog, it isn’t a usual outcome after a year of investing. If you are looking for that sort of quick turnover, look into starting a business. Otherwise, get into the mindset that you are in essence creating your own pension. How fast you can start to eat off that pension is all dependent on how structured and consistent you are with your investments.
It took me some time to accept that it is okay to become exponentially wealthy in my thirties rather than my twenties (this has allowed me to move to Europe, travel, and become a devout foodie at 23). Of course, depending on your capital, you could in fact eat off your investments in your twenties, it just depends on various circumstances.
If you are a long-term investor, you must understand that this means that you are looking to grow with the various companies you are investing in so that when you get to the age and net worth of your choosing, you can live comfortably and freely, without having to get out of bed to get to work (unless you so choose to).
It is called long-term investing for a reason.
Trying To Invest Like Warren Buffett
Yes, I do own The Intelligent Investor by Benjamin Graham, and yes, I have listened and studied nearly every interview Warren Buffett has been on, but I do not wish to invest just like him.
My investing techniques are in fact inspired by him, amongst others, but the way he amassed his wealth cannot be duplicated. He was investing during a completely different era which required very different things to become successful in the market. You cannot expect to invest in a company and hold on to it for the rest of your life. You must be aware of all your companies’ competitors, if they are adapting to the ever-so-quickly changing technological age, if they are sitting on a lot of cash, and various other significant aspects.
The market is more flooded now than ever due to technology. A very long time ago, the only way to find out information about publicly traded companies was to call them up and wait weeks for them to mail you documents about the business. Now, you can go on their Investor Relations page online and have access to the information you need – just like the millions of others invested in the same company. Warren Buffett lived during times of economical changes that directly affected the stock market. Nowadays, there are so many different things affecting the market from speculation to pop culture that you cannot expect to have a speedy escalating net worth. Think like Warren Buffett, but a 2019 technologically-savvy Warren Buffett.
“Lava Investing”™
I am pretty sure no one has referred “lava” to anything regarding investing (I checked Google to make sure), so if you do in the future, remember who said it first!
What I mean by lava investing is jumping in and out of stocks when things get hot (good and bad).
Here is a test for you:
Imagine you did a ton of research on Company X and came to the conclusion that you are going to invest a few thousand dollars into the company.
After doing so, a month goes by and you notice that the stock price has dipped by 25% because the economy is in a decline, leaving you at a loss if you were to sell. What would you do?
A. Sell all your shares and wait for the economy to bounce back.
B. Don’t do anything. Just stay off your account and hope for the best in the coming months.
C. Take advantage of the discount in stock price and buy more shares, since you trust your stock picking capability.
If you chose C, you are on your way to becoming a millionaire. B, you have some self control but may get unlucky with a stock that takes years to get you back to just breaking even. If you chose A, you will have a significantly hard time even scratching the surface of your investment goals due to you buying and selling based on short term events – or simply put, lava investing.
Don’t be that person who raves about a company then sells his/her shares the second some bad news comes out. That is poor investing. Investing in a strong company but then noticing that the company is in a steady decline due to poor decisions over time does in fact merit a sell, for the most part. But key word is “over time”. Do your research before you start unloading shares.
Not Valuing The Power of Dividends/DRIP
This, right here, is my golden egg. Dividends are like putting a quarter in a gumball machine and getting a free gumball every month (while the gumball flavours get better and better) just by putting your hand out! Dividends on a stock is the sweet spot of investing for the long-term. While your company is working hard behind the scenes, you may get paid a percentage of the stock price every month, quarter, or annually, just for owning the stock! I will share with you the benefits of dividends on another post, but just know that dividends have the capability to catapult your wealth building.
DRIPs (Dividend Re-Investment Plan) are set up in such a way that if your accumulated dividend you get every month, quarter, or year totals or exceeds the stock price of that company, it will automatically reinvest it and buy you the equivalent amount of shares with those dividends. Basically, your investments are investing into themselves! This is millionaire/billionaire status talk!!
2019 can be destined to be your year if you plan things out wisely and ensure that wealth building is on your list of priorities. It may seem small at first that you can only invest a few hundreds of dollars every so often, but think about how that multiplies over the years with increased income, dividends, and stock appreciation! You will look back to these days and thank yourself for starting when you did, while you are relaxing in your villa overlooking an ocean of unprecedented freedom and opportunity.
Until next time,
Live Long and Prosperous.
J.M.
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