- When I started investing last year, I had no idea what I was doing so I asked a friend for advice.
- They recommended in investing in companies I love, so I chose five and split up my funds.
- I didn’t do any research into the companies or the price of their stocks, and it has cost me.
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At the start of last year, I decided it was time to finally put some cash in the stock market. I had spent so long fixing up all of my financial mistakes from my 20s and was in a place where investing in stocks made sense for my overall portfolio.
The challenge was, I had no experience with the stock market, and deciding which companies to invest in felt like the wild west.
When I was scrolling through my investment app (I use a platform that offers commission-free trades of stocks) I felt overwhelmed by which stocks to choose. It became even more confusing when I tried to do research and read blogs or listen to podcasts from people who were recommending which stocks to invest in that week (based on a mix of things like earnings reports, news on the company, or just their personal recommendation).
I took a friend’s advice and ended up regretting it
I found myself staring at my account unable to make any decisions. That’s when I casually asked a friend what they thought I should do. Their advice was to invest in companies that I believed in and liked. I thought it was a good strategy and made sense, because then I was putting my money behind companies that I personally wanted to win and succeed. I made a list of five companies that I really found myself loyal to, respected, and wanted to invest in.
I started off with a few thousand dollars and divided that money between the five companies (based on how much each stock cost) and bought anywhere from two to 12 shares in each of these companies.
I felt proud of this move and wondered if the logic behind investing in the stock market was as easy as trusting your gut and betting on companies you know, consume, and love.
A year later, this method turned out to be the worst rookie mistake I could have made.
Why my strategy failed
I didn’t do my research before buying stocks
First, my decisions were based on emotion, which can be a dangerous thing when it comes to the stock market. Just because you personally love a company, doesn’t mean you should invest in its business. I didn’t do any research on the companies I chose, I just made a list and bought stocks. This opened me up to big risk since I had no idea how well that company was doing or what its earnings were.
What I should have done instead was make my list then look into each company to learn more about its profit, debt, earnings, leadership, and more. I also could have considered investing in an ETF or index fund, giving me broad exposure to many top companies.
I didn’t pay attention to the price of the stock
Another big mistake was that I just bought the stocks without having any understanding of whether the price I was paying was sensible. Because I was so eager to invest and was making decisions based on emotion, I didn’t check to see if it was a good time to buy the stock or if I should wait for the price to drop. I ended up buying several shares of a company at a very high price that has dropped significantly ever since.
While it wasn’t the smartest idea to invest in companies based solely on my feelings about them, this was a learning experience. In the future, I’ll be doing a lot more research before putting my money in the market.
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