5 Investing Mistakes I Wish I knew at 20
In May 2021, Dogecoin's price crossed 70 cents and reached a valuation of 93 billion dollars.
But that didn't last long.
In the next few months, its valuation dropped to just 27 billion dollars at the time of
this video.
66 billion dollars of wealth was wiped out.
The reason why Dogecoin kept rising first to 50 billion dollars, then to 70 and eventually
to over 90 Billion dollars is because on the other side of the equation, there were people
who paid that much money to buy Dogecoin, at the end of the day, what drives the price
of any asset is demand and supply.
Enthusiasts believe that Dogecoin will still rise in value and it has a future.
Even if it doesn't, it's still not bad for a coin that started as a joke.
But that's normal in the world of investing.
You never know for sure what will rise and what won't.
So we all make mistakes, even the world's greatest investors.
In 1993, Buffett bought a shoe company called Dexter Shoes.
Buffett's investment in Dexter Shoes turned into a disaster because he saw a durable competitive
advantage in Dexter that quickly disappeared.
Buffett claims that this investment was the worst he has ever made.
He lost $3.5 billion on that deal.
That's why here in this video, I want to share with you my 5 worst investing mistakes.
In fact, I see a lot of people repeating these mistakes even though they have been in the
stock market for some time already.
In my over 7 years of experience in the stock market, here are the 5 investing mistakes
you should avoid at all costs if you want to stop losing money and start making money.
But before we do that, here is a little disclaimer - this is not financial advice, and everything
that's said in this video is for educational and entertainment purposes.
And now, let's start with the first one.
1.
Listening to the big guys when I got into the stock market for the first
time.
As a beginner, I started reading what the big guys are saying, such as JP Morgan, Citigroup,
or wall street in general.
I thought that since these guys have been in the market for such a long time, they certainly
know better than me.
They are professional investors.
They have thousands of analysts, economists working for them, so if they are saying that
this is a safe investment, then they are probably right.
But the truth is, you should never trust these guys because they are saying that because
it's in their interest, and it might not represent the reality.
In 2004, when the housing market was turning into a bubble, the dean of the Colombian business
school Glen Hubbard was paid to coauthor a paper with Willian C. Dudley, Goldman Sachs
Chief Economists, where they praised derivatives (derivative market - has improved the allocation
of capital and risk and were enhancing financial stability) when in reality it was clear that
derivatives were creating this bubble that sooner or later will burst.
Even Warren Buffett warned everyone that derivatives are financial weapons of mass distractions.
We made an entire video about it explaining how it works.
The link will be in the description.
But that's just one out of many examples.
Others were paid to say that Iceland's economy is so stable that its housing market will
forever keep rising, but it was one of the first countries to go bankrupt during the
2008 crash.
Many people based their investment decisions on what these economists and professionals
said.
Others went so far that the top 5 Lehman Brothers executives destroyed their company just to
fill their pockets.
They made over a billion dollars.
Do you think they care about you?
So when you want to invest.
You have to understand the market yourself, never rely on authority.
Never rely on what the professionals are saying.
Of course always read their opinions, but at the end of the day, make your decisions
based on your best understand of the market.
2.
not understanding Debt
The stock market is already slightly complicated, but most people can figure out how it works
in a relatively short time.
But what most beginners don't understand is how much leverage is involved and how it can
impact a particular asset.
When you see the news such as traders use a 100 to 1 ratio when trading bitcoin.
Most beginners don't really pay much attention to such news, but if you don't understand
that, you should not even invest.
Even if you do your analysis, figure out that this asset is going to double or triple; leverage
can destroy everything.
The leverage ratio 100 to 1 means traders are borrowing 99K dollars for every 1K dollar
they put themselves.
Say I am a trader, and I have just 1k dollars.
If I make a 10 percent profit, that's 100 dollars, but if I borrow 99K, now I am trading
with 100K, and if I make a 10 percent profit, now that's 10K dollars and not just 100 dollars.
But as always, the more profits you can make, the riskier the asset.
But if the bitcoin price drops by 10 percent, which is quite normal for an unstable asset
such as crypto.
Your broker will immediately sell all of your position in order to minimize losses.
In fact, he will sell them at the lowest price possible to exit your position as soon as
possible because you have no money left to trade and if the broker won't be able to get
his 99K back, you will owe your broker the remaining amount plus interest.
But the question is, how is that going to impact you?
If a single trader goes bankrupt, that's not a big deal, but when leverage is widely used
in that market, then there will be an oversupply of that asset in the market even if the price
slightly drops.
When the supply outweighs the demand, that will further decrease the price which will
push more brokers to exist the positions of their clients.
Its like a snowball effect.
Suddenly an asset with a promising technology suddenly goes to zero.
But some of you might say: if it's a profitable asset, there will be some demand for it, or
there are a limited number of bitcoins in the market, so there will always be a demand,
unlike the fiat currency, there is a promising technology behind.
Which is true, but people said the same thing about the housing market.
And a house is the type of asset that you can touch, feel and use.
In fact there will always be a demand for shelter.
It's one of the oldest and most mature markets in history, and yet leverage destroyed it.
So before you invest in any asset, find out how much leverage is involved.
3.
not seeing the big picture
When you throw your hard-earned money into the stock market, your heart starts beating
twice faster when you see the stock price drop.
The fact is - daily ups and downs do not matter at all.
They don't even represent how the business is performing on a daily basis.
A single rumor can dip the price or raise it.
That's how the market works, it moves based on people's perception about the company and
its potential future, but as a long-term investor, you should not care about that.
Take Tesla, for example, it had moments when the stock price dropped by 20, 30, or even
50 percent, but if you take a look at the chart, the stock has increased by almost 18K
percent since it went public.
The people who saw the big picture understood Tesla's vision, and ignored these dips, and
kept holding their stocks.
Tesla is just one example.
There are millions of other examples.
Amazon has grown by 192K percent since it went public.
So, before you invest in any company, figure out its strategy and find out where it would
be in 5, 10, or 15 years and then invest.
4.
Not investing in knowledge Most people overestimate themselves.
They watch a video or two on youtube or read a few blog posts on the internet and imagine
themeless investing experts explaining why Dogecoin is more valuable than the US dollar
and that people like Warren Buffett are losers since they haven't invested in Dogecoin yet.
A wise man once said: the more you learn the more you find out you don't know.
If everything was black and white, then everyone would have earned a fortune from the stock
market.
But the reality is, most retail investors lose, and even hedge funds who charge astronomical
fees trying to beat the market often don't.
In fact, Warren Buffett bet a million dollars that stashing money in an index fund would
make you richer than if you entrusted it with hedge fund managers who spend a fortune trying
to beat the market.
And guess what, he won the bet!
The information you consume on YouTube or the internet is usually made for entertainment
purposes because that's how you get the views.
It doesn't worth spending so much time and money creating a video when not enough people
watch it, so be careful what to trust and what don't.
Find credible people, people whom you trust and who seem experienced.
Don't hesitate to spend some money on professional courses.
Just a little disclaimer, I don't mean fake courses that will teach you to become a millionaire
in 67 steps but rather the ones that actually teach you how the market works, how to analyze
companies, how to read financial statements, and so on.
Remember, time is your most valuable resource, so don't hesitate to spend on education and
save yourself a lifetime.
5.
Not having a clear plan
Everyone gets into the stock market for one reason - to make money!
That's the obvious reason, but what most people don't determine is what is their end goal,
what is their investing strategy.
For example, if you hold index fund stocks, then you should not even follow the stock
market.
Your goal is to build wealth over a long period.
But if your strategy is to pick the right company that will dominate a certain sector,
then you should take a completely different approach to invest and focus on entirely different
factors.
When you don't have that plan before jumping into investing, you tend to make all kinds
of mistakes.
You start reacting emotionally to ups and downs, and you make decisions that will damage
your portfolio overall.
That's why when you are starting, start with a small amount.
Don't put all of your money into any asset, even index funds.
Once you try a few stocks, you will have a sense of how everything works.
And start slowly building your strategy.
Otherwise, you will be distracted by all kinds of meme stocks that will drain your bank account,
and you won't gain much at the end of the day.
And now it's your turn to get your 2 free stock from Webull.
We bull is a broker that you need to buy stocks, but if you use the link in the description
you will get 2 free stocks when you deposit 100 bucks.
By the way, what is the worst investing mistake you have ever made.
Let me know in the comment section below.
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Thanks for watching and until next.