(03) 9020 2905Life is about learning and most of us like to achieve those little milestones at our own pace. Some pick up things fast, some slow.
And some, not at all. When it comes to drinking, I’m Sean Connery. I’ll “never say never again”, as doing so would threaten way too many social (and business) opportunities.
The media, for all its foibles, helps in the learning process. We suck it up, almost unaware that it’s making us smarter every day. And knowledge is power.
Learning, of course, is a particularly powerful skill when it comes to money. Once you’ve learned and implemented a money lesson, the reward can be multiplied over a lifetime (the power of compounding).
But the best way for something to sink in would have to be “learning by stuff-up”, preferably your own. If he had his time again, do you think Seth Brundle (Jeff Goldblum) would have invested in some Mortein before entering the telepod in The Fly?
When it comes to money, the bigger the mistake, the less likely you are to make that same mistake again. So, a million-dollar “lesson” would be pretty valuable, right? Particularly if you could learn it without having to lose your own million bucks in the first place.
How do you do that? You could do it with other people’s money and become a rogue trader (no guys, not with Natalie Bassingthwaite) and have mates like Barings’ Nick Leeson, or David Bullen from National Australia Bank’s gang of four.
But you’d probably rather do your learning without doing time. So you need to learn from others’ mistakes.
Author and share trading survivor Kel Butcher is here to help. He’s got together 20 (largely) Australian screen jockey professionals and got them to spill their guts about the worst mistakes they’ve witnessed or made.
Butcher’s book, 20 Most Common Trading Mistakes And How You Can Avoid Them, is about having processes that will stop you repeating errors. So you don’t have to say “D’oh!” over and over again.
While the book is aimed at traders, most of the advice applies to all investing.
To go through all 20 of the most common trading mistakes would require a book, which will be why Kel wrote one. So, here’s my selection of trading mistakes that investors of all descriptions make.
Mistake #1: Not knowing it was a mistake. Losing money isn’t necessarily a mistake. Not knowing why you lost money and whether it was worth trying again is, however, dumb. Kel: “First time it’s a mistake, second time it’s my fault, third time I’m an idiot”.
Mistake #3: Failing to plan is planning to fail. Kel: “Only fools have no tools.” Same thing I preach in Debt Man Walking – there’s no point doing anything to make money unless you commit, on paper, to what you’re trying to achieve.
Mistake #9: A 1000 per cent return in three days! Don’t get sucked in by all-promise hyperbole. If making money was so easy, the whole world would be sitting on a beach, drinking margaritas, being smothered in cream by bimbos and himbos. Except for this problem: The bimbos, himbos and cocktail staff would also be sunning themselves next to you. Kel’s chapter expert, Wayne McDonell, says: “One must never underestimate the power of dumb money and people’s desperate situations that draw them to the promise of making easy money”.
Mistake #11: Misusing leverage and margin. Understand that borrowing for anything increases your risk. The more you borrow (to buy a home, investment property, or shares), the bigger the risk you are carrying. Don’t let anyone talk you into believing any different.
Mistake #17: The emotions of a robot. Investing is not about feeling good about your investment. It’s about making money. This is a big problem with investment property. Some think they should want to live in the property they’re buying. Why? They’re not going to live there! Tenants are. Would tenants want to live there?
Mistake #20: Avoiding the paperwork. No investor will last long without tending to the paperwork. You either do it yourself, or you pay someone to do it for you. Stuffing up your paperwork can be an expensive tax nightmare.
Now, how to apply this to something today …
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and director of Castellan Financial Consulting. Email: bruce@debtman.com.au