My Biggest Stock Market Mistakes (And How to Avoid Them)

Here's my biggest stock market mistakes when I first started out as an investor. And this is how I avoided them.

Note: I want to let you know this sponsored article is a collaboration with Tiger Brokers. Whatever I write here is my own views and opinions, based on my research.

I bought my first stock in 2010. That kickstarted my investing journey. I’ve invested for 12 years now, and I continue to make many more stock market mistakes.

Some are common mistakes. Some are costly mistakes.

But I learnt as much from them.

These are my 7 biggest stock market mistakes. And how you can avoid them.

#1: Not starting as early as possible

I should have traded my first stock way earlier. I bought my first stock only in October 2010. It was a U.S. tobacco company. I started reading intensely about investing in early 2009. 

Yet, I waited over a year to get my hands dirty in the stock market.

The problem I had was I wanted to make sure I knew EVEYRTHING on investing before jumping to the deep end of the pool. I waited too long. 

Because I realized it’s only when I trade my first stock, then I know what’s crucial to read, analyze and research on. 

Otherwise, it’s simply talking strategy on paper. 

More importantly, if I had bought stocks earlier, I could have better capture the gains during the global financial crisis.

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#2: Not treating investing like a business operation

When I started, I simply followed everyone else, treating investing as buying and selling individual pieces of shares. 

When one of my stocks goes up, I get happy. 

When another of my stock goes down, I get disappointed. And often, my emotions jump between joy and disappointment.

Instead, treat investing like a business operation. I’ll explain. 

Instead of looking stocks as individual pieces of paper, you think of them like inventories for a business to operate. These inventories (stocks) collectively help produce profits and dividends for you. Even when one or two stocks fall in price, you don’t get affected by it. 

You own a portfolio of inventories (stocks), monitor them and manage them by making sure businesses you own continue to be in great shape. If any of these inventories don’t serve you, sell.

Sometimes, you might buy an excessive number of stocks. You trim it. 

You keep a close watch on your portfolio’s overall performance. You might have some losing stocks. But overall, a large part of your gains will be driven by your winning stocks.

I own a basket of businesses across different industry. More important, own stocks across different countries. Smart diversification matters. 

This way, I wouldn’t feel so stressed if one or two stocks were losing money. Because my overall investing operations was making money. That’s all that mattered.  

#3: Not finding a mentor

I’ll put this upfront – finding a mentor HELPS a lot. 

It accelerates your learning curve, gives you fresh insights and helps you avoid big mistakes But I let ego get the better of me. I thought I could learn investing by myself. Huge mistake. 

I would have saved myself the capital losses, and accelerate my learning. Especially at times felt like I was heading nowhere. 

A mentor shows you their mistakes so you can either avoid them or reduce the impact. More crucially, a mentor gives you different insights, network and ways of analyzing businesses. It’s good to find someone who has walked the path. And is successful. You accelerate your learning curve this way. 

The world is full of financial gurus pushing you crazily expensive courses. Some are good. Some are bad. Look for those that truly helps you. There’s always something to learn from them.

Other than finding a mentor, you can find like-minded individuals to share your investing journey. I join the Tiger Community, which is a great way to get access to a community of like-minded investors. There’s also an active discussion forum, which is especially helpful for beginner investors. 

#4: Not diversifying enough 

When I started, I only had seven stocks in my portfolio. 

At one point, I had 61% of my portfolio in just one stock — a company that sells women’s apparel. Big mistake. That stock went on to lose over 55% in market value within two years.

Sometimes, two or three of your stocks go wrong. It’s normal. This is investing. Things can get shaky. But what you need to understand is this – billionaire investors like Warren Buffett, Seth Klarman and Howard Marks could manage billions of dollars safely, precisely because they spread their money over many different stocks.

When Peter Lynch, a famous Fidelity Investment fund manager, took over the Magellan Fund, he owned 100 to 150 stocks. His returns for the Magellan Fund? A 29% compounded annual return between 1977 to 1990! That’s impressive. 

His conviction in diversification led him to survive multiple crises – the “savings and loans” crisis in 1980, Black Monday in 1987, “junk bond” crisis in 1989 and so on. The fund’s returns were nearly twice the 16% return on the S&P 500 Index. 

In fact, The Magellan Fund was the best performing fund then.

#5: Listening to other people

I cannot emphasize this enough. One crucial mistake was not trusting my gut. The first stock I bought was a US company. I started investing in the US stock market. However, people told me to stay out of US stocks. Why? Back then, the US dollar currency was weak, US stocks appeared more volatile, thus seemed “riskier”. 

As a newbie, I got scared.

Why invest overseas when you can invest in Singapore stocks?” A good friend once said, “You know the brands, Singapore shares (prices) don’t move so much, no so volatile.”

People influenced me to invest in Singapore stocks instead. Because it feels safer. Not a bad choice. I followed that advice. And I missed out some of the biggest gains in the US stock market – especially financial and tech stocks — since 2013!

Trust your guts. 

Don’t let other people’s advice influence you. If you think there’s gems found in Hong Kong, Australia or even Europe. Go for it.

Tiger Brokers is a great way to get our feet wet in investing across different markets. And the best way to learn is to expose ourselves to stocks not just in Singapore, but across the world. Tiger Brokers now has access to Singapore, US, Hong Kong, Australia and China A-shares. Right at your fingertips. 

#6: Over-relying on valuation models 

I used to rely on valuation models. 

I’d do a forecast of a company’s revenues, profits and cash flow. But all these numbers don’t make ANY sense if you don’t understand the business. Numbers are just numbers. I made that mistake of depending too heavily on valuation models. And it’s a common mistake for people starting out to invest. 

Instead, learn to understand businesses. You can do this by reading financial reports and industry reports. Talk to like-minded investors. Talk to business owners. Learn what drives businesses’ revenues, does it have an economic franchise, and is management sound. 

THEN use valuation models as a tool to be objective

#7: Believing arbitrage investing makes the most money

It takes up too much of your time. 

And it works but you got to put in a tremendous amount of effort. And once you collect your profits, you got to reinvest them again. You’re always on the hamster wheel. I should have focused on buying great businesses earlier on instead. 

And let my wealth compound.

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Final Thoughts

Investing is a never-ending journey. There’s no such thing as not making mistakes. You’re sure to make mistakes, just like me. But don’t let the big stock market mistakes cost you your capital. I did at one point.

Learn from mistakes. Avoid the big ones.

Sometimes, investing can be simple. 

Willie Keng, CFA

Founder, Dividend Titan

Note: I want to let you know this sponsored article is a collaboration with Tiger Brokers. Whatever I write here is my own views and opinions, based on my research.


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David lim
David lim
1 year ago

Thanks, Willie.
With reference to your Shareinvestor webinar on 17Sep2022.
On 19Sep2022, GIC [Spore] has launched a buy out of Store Capital ~USD32.25:-)

Best Regards

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