A BIG Investing Mistake As a Beginner

2.5 minute read

In the beginning of my investing journey, I bought 200 shares of CF Industries. The company produces fertilizer for farms and is based in America.

I had just started investing, and I cloned a respected investor, Phil Town.

But I was quickly humbled by Mr. Market. As soon as I bought the company at $33 per share August, the stock price dropped to $27 In about just two months, I lost roughly 20%.

Unfortunately, that wasn’t my biggest mistake.

It took the stock LESS than a months to recover to breakeven, and it went on a bull run thereafter, so imagine my delight when it shot up to $108, about 2 years later!

However, the mistake was….

I sold at $53, a 62.3% after one year. I locked in my profits and gave myself a pat on the back.

After all, Jesse Livermore once said that “no one ever went bankrupt by taking a profit.”

Except that it was the WRONG move. Sold way too early. Could have hold longer.

My huge return was snuffed out because I took profit. Fundamentally, the company was doing well, more than doubling sales from $4 Billion to over $11 Billion.

Fundamentals are important!!

Don’t sell based on stock price alone!

My mistake cost me $16,300!

Luckily, I learned a lesson, and did not loose money.

You don't have to make the same mistakes I did. Here are three lessons I learned from this experience:

#1. You Own Pieces of Businesses, Not Stocks

The stock market serves as a place to buy businesses that can compound your wealth for you. Your ownership is not just a piece of paper that changes hands for a quick buck. Mr. Market will occasionally mess with your head, but always remember that you are a business owner, not a stock trader. This shift in mindset is crucial to your portfolio's success.

#2. Valuations Isn’t Just About Stock Price

Just because Nike’s share price is $131 and Lululemon’s share price is $387 does not make Lululemon more expensive than Nike. Valuations do not simply equal the current share price. Valuations are a function of cash flows, growth and the durability of the business. ​

#3. When to Sell?

Being long-term investors isn’t all about buying and holding forever. It’s about buying and consistently monitoring the fundamentals of the business. Three guidelines I apply on when to sell a business:

1. The business has deteriorated permanently.

2. There are better opportunities out there.

3. My thesis was wrong, the story has changed.

Fundamentals are important!!

In future post we will break down each lesson and much more.

Until then keep buying assets and thanks for reading!

Stefan

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