My Biggest Investment Mistake and Why I don’t buy Individual Stocks!



We are all human and err from time to time.  The key is to learn from the experience and not make the same mistake again.  I will discuss my biggest investing mistake and what I have learned from it.

We have all seen the investing advice:  buying this stock will make you rich, and this stock will set you up with a long term dividend income streamWhen I started investing, I listened to this advice….and I paid for it, literally!

The stock:  Fannie Mae.

I was interested in Dividend Stocks and read a lot of articles about how they have good returns and can make you wealthy with market beating returns.  I read a lot of articles recommending Fannie Mae and took the bait and bought the stock.  I didn’t understand the business, but figured the “experts” writing about it did, and I wrongly listened to them.

Fannie Mae (FNMA) Stock Price and Dividend History

After I bought it the price went up and I enjoyed the dividends….for a short time.  The stock came crashing down quickly during late 2007 and 2008.  August 2008 was the last dividend ever paid….The stock price reached less than $1 in October 2008.  Ouch!

The interesting thing about the internet is that you can still find articles suggesting to buy FNMA from this time.  Here is an example:

 

My Personal Learnings from this experience:

  • Don’t listen to “experts” advice, without vetting it yourself.  Trust but verify!
  • If you don’t understand the business or the investment, then don’t buy it.
  • It is tough to beat the market with individual stocks.  As an individual investor, I don’t have the time or tools needed to match the market, let alone beat it.
  • Index funds with a collection of stocks are more efficient when you small amounts to invest.  You can get a collection of 500 stocks with a relatively small purchase.
  • When you buy individual stocks and a company struggles, it has a bigger impact on your portfolio than when a company is one of 500 in an index.
  • Just because a company has an increasing stock price and dividend today, doesn’t mean it will in the future.

Going Forward

I have reflected on my biggest investment mistake, and have since focused on Index Mutual Funds and ETFs.  I will never say never to purchasing individual stocks, but one incident like I had is enough to create pause.

There are a lot of people who give their stock picks.  Before following them like sheep, think about it.  Yes, there are legit picks…but some of the picks are made to just create a buzz or to fill a requirement to create a post.

In closing, be careful with the investment advice you read.  Maybe the recommendation is a really good company….or maybe it is the next Fannie Mae!

2 Replies to “My Biggest Investment Mistake and Why I don’t buy Individual Stocks!”

  1. I’ve largely moved away from picking individual stocks myself. People tend to get over-confident. My worst mistake was betting and losing $20K on coffee futures. Now I’m mostly in Index Funds and ETF’s, like you.

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