Have you ever made a really bad financial decision? Something that cost you a lot of money? If you answered no to those questions, no need for you to read on, you are all set! But if you answered yes, let me share what I learned losing $1,000.
Years ago I was working at a company that produced research on stocks. We had recently published some optimistic research on a small biotechnology company that had huge upside. I was so excited about it’s potential, I put a thousand bucks into it, just knowing that it would turn into $5,000 in a year or two.
I know what you’re thinking, so let’s say it together: Scott, you’re an idiot.
After buying the stock at $33/share, the company had bad news after bad news, and plummeted all the way down to $2/share, when I finally gave up and chalked it up as an expensive mistake.
But looking back on it, it was more than a bad financial decision. It also was a valuable learning experience.
Here’s what I learned losing $1,000:
-Know What You Are Buying
I couldn’t tell you what this company made, how their products worked, or anything of the like. There is no way I could have explained this product to other people. If you aren’t able to do these things, you don’t have any business buying something.
And no, you don’t have to become an expert. But you should be able to express a few sentences on what you are buying, whether it is an individual stock, a diversified stock/bond portfolio, a product for your business, or anything else.
-Take Your Time To Make A Decision
I made this purchase in just a couple days. There was no need for it to go that quickly and it ended up hurting me big time.
When you’re thinking of making a purchase or an investment, don’t just give it a night to sleep on it. Give it a week (at least), to make sure that you’re as comfortable with it on the 7th day as you were on the 1st day. This will lessen your chance of mistakes, and increase your confidence in your decision.
-Don’t Try To Hit Homeruns
At the core of my decision to invest in this company is that I was trying to make a really great return on my money. In baseball parlance, I was trying to hit a home run with this investment. But that’s the completely wrong approach to take with your investments.
Becoming a great investor, and building wealth isn’t about hitting home runs. It’s about hitting singles and doubles, so that you are slowing growing your wealth over time. It’s not sexy, it’s not as fun to talk about, but it simply works. Embrace that it will take time to build wealth, and you and your family will better off for it.
So what do you think? What other lessons have you learned when you’ve made a bad financial decision? Or are you considering purchasing something and want a second opinion? You can see if I can help and share your thoughts and ideas with me at scott@dev-forthrightfinances.pantheonsite.io