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Top Three Investing Mistakes

April 13th, 2008 ·

The Dividend Guy blogged about his top investing mistakes and challenged other bloggers to do the same. Over the years, I’ve committed my share of mistakes and have frequently blogged about them. Regular readers know of blunders such as having too much tied up in employer stock or buying into labour-sponsored funds for the “tax savings”. Still, it wasn’t difficult to come up with this list:

  • Chasing Performance: At one time, my portfolio held one venture capital fund, one Science and Technology Mutual Fund, Yahoo! (YHOO), JDS-Uniphase (JDSU), Nortel Networks (NT), Millennium Pharmaceuticals (MLNM), Intel (INTC) and TD Bank (TSX: TD). Since I started investing in 2000, the reason for the motley collection of over-priced and speculative holdings was simply chasing recent performance without realizing that investors don’t earn past returns. The only stock that I made any profit on was Yahoo! and the only stock I hold to this day is the odd man in the list - TD Bank.
  • Not Paying Attention to Expenses: It’s bad enough buying into the latest investment craze; it’s worse to find a high-priced way to do it. The Science and Technology fund I mentioned before sported a MER of 2.5% and came with a 5-star rating in the list of “best” mutual funds. I probably might have been better off speculating with a low-cost fund like the QQQ and saved the MER.
  • Focusing too much on the minutiae, less on the big picture: In my early years of investing, I spent too much time on the minutiae of investing - should I buy TD Bank (TSX: TD) or Royal Bank (TSX: RY)? Should I buy Enbridge (TSX: ENB) or TransCanada (TSX: TRP)? - and less on the big picture -the overall asset allocation (cash, bonds, stocks and REITs), splitting equities between Canadian and foreign stocks etc. Not to mention the time and effort spent on the minutiae was fairly useless and a plan vanilla index fund would have done just as well or better.

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15 responses so far ↓

  • 1 Four Pillars // Apr 13, 2008 at 11:24 pm

    Good list…

    guilty, guilty and guilty… :)

    Mike

  • 2 Robillard // Apr 14, 2008 at 3:10 am

    I used to work for an LSIF management company. 2000 and 2001, even 2002 were terrible years to invest in venture capital. At the time there were too many LSIFs chasing too few good venture capital opportunities. Losses were the inevitable result. (Though by comparison, the NASDAQ composite index still hasn’t come close to the high from the dot-com bubble.) Also, most were too small or too badly managed to keep their expenses in line. Since then, the segment has hollowed-out considerably and the survivors are achieving a scale that permits practical reductions in the MER. Still, I would be wary of putting much of one’s portfolio into LSIFs. The tax benefits are nothing to sneeze at, and they may be less correlated to other asset classes, but the MERs on most LSIFs are terribly high and the lock-in provisions can be deadly. Don’t forget to ask your IA what kind of commission they earn on the products they recommend!

  • 3 Steve Heath // Apr 14, 2008 at 8:38 am

    If it makes you feel any better, C.C., the ONLY reason I have never made any of those mistakes is that long before I invested my first dollar, I read every single post on your blog and picked your brain a few times, which let me put together a good plan which should work in the long run (it’s still too small to say for sure :)

  • 4 Andy // Apr 14, 2008 at 8:49 am

    I second Steve Heath’s comment!

    My wife & I have benefited a lot from the PF blogs and websites out there, especially the Canadian ones, and CC’s is at the top of the list.

  • 5 Canadian Capitalist // Apr 14, 2008 at 10:16 am

    Robillard: I purchase LSIF through an “advisor”; so the nice compensation might have been a factor in “pushing” the product on me. Still, I can’t escape blame here: I was blinded by the immediate 30% tax break and the past returns at the time of purchase.

    Steve, Andy: Thanks for your kind words. Thankfully, investing is a life-long affair and hopefully I have committed the biggest mistakes early on.

  • 6 Aleks // Apr 14, 2008 at 3:15 pm

    I made the first two mistakes early, with my company RRSP. The amount I had invested was tiny so the cost of the mistakes was miniscule. The only individual stock I’ve ever owned was my employer, and I wouldn’t call that a mistake since I made about 20% in one year.

    At the time I was making those mistakes, I wasn’t even thinking about investing or retirement. I was really only doing the RRSP because of the company match. I didn’t read a single finance book until almost a decade later. However, long before I really got interested in investing I knew not to chase returns and ignore fees, because I’d made the mistake. It’s an effective learning method I think.

  • 7 Phil S // Apr 14, 2008 at 8:24 pm

    As with most people, my first exposure to retirement planning was through a Group RRSP plan at work and I thought the financial managers at the company sponsored Group RSP program were looking out for my best interest, so that I could focus my time on my own career path. Boy was I ever wrong! That would have only been in an ideal world. It is truly sad that the financial services “industry” is full of slimy people out to rip everybody off by pushing products that would only line their own pockets. OK, maybe it’s not completely “full”, but to coin a joke about lawyers, it’s just the 99% of them which make the rest all look bad… It is very much akin to theft by a confidence artist, but the worst part is that it is all perfectly legal.

  • 8 Sol Veritas // Apr 15, 2008 at 1:26 am

    Down about 97% on Nortel - I keep it as a humble reminder that, as much as I think I know, maybe I don’t really know after all…

    However, it may be making a comeback! 40G and 100G will light the way to new highs!!! And all was right in the world…

  • 9 FGC // Apr 16, 2008 at 9:25 pm

    I’ve defintely been guilty of the expenses part when I started investing. I don’t think too many people pay attention to this until they purchase and read the expense report.

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