Follow My Lead For Stock Market Success: What I’ve Learned Investing In The Stock Market

I’ve been investing now for almost 20 years. That includes three bull markets, two recessions and two bubbles bursting. Yet through it all, when I look over my investments in Quicken, I see that I’ve averaged a 21% return on investment and that my money has grown from just the $100 I started with in a stock into a portfolio that comes to close to $500,000. Granted I’ve been adding money over the years as well, but bulk of that growth is due to the market itself. It has made me think of the lessons I’ve learned along the way, both the good and the bad. Below are these lessons, hopefully to help you find investing success as well.

How I Began Investing

It all began back in the late 1990’s after I took an economics class in high school. I was fascinated by the stock market after reading One Up On Wall Street by Peter Lynch. True to his motto of going to the mall to find good stocks, I invested in what was then known as Intimate Brands. At the time, the company owned Victoria’s Secret and Bath and Body Works (and was majority owned by The Limited). I saw that every woman in the mall had their pink bags and the store was always packed. So I convinced my Mom to open a custodial account at a discount broker and let me invest some of my money.

I held onto that stock for close to 10 years, enjoying the good times and the bad. It returned three times what I invested into it, not including dividends. While I was happy my first investment was a success, not all of them were.

Mistakes Along The Way

While my investment in Intimate Brands was a solid long-term investment, I fell victim to chasing returns with two other stocks. First was Worldcom. I bought this company during the dot com boom. I remember turning on CNBC and getting excited as the share price jumped by $5 a day on rumors of an MCI or Sprint merger. The merger deal with Sprint fell through, but the deal with MCI didn’t. Sadly however, it turned out that the accountants at Worldcom were “cooking the books” as they say and overstating income and revenue.

The stock tanked. Foolishly not wanting to admit a mistake or realize a loss, I bought more shares on the decline. Then I bought more shares as it declined further. Eventually, the company went bankrupt and I lost everything.

The bad investing didn’t stop there. In the early 2000’s I had also invested in Ford. This stock went nowhere and eventually declined a good amount. Still feeling the sting from Worldcom, I cut bait when I had lost 50% of my investment. At least I learned from past mistakes by not riding it down further!

Finally, also during the dot com boom, my grandfather gave his grandkids some money. I bought myself a new computer and invested what was left over. I got caught up in past performance and invested in a tech mutual fund. I was ready for the 60% return the fund experienced the last 2 years. Unfortunately, the bubble burst and I lost over half of my money. I sold out of the fund, licking my wounds.

What I’ve Learned

As you can see, my investing career hasn’t always been a smooth ride. There have been many bumps along the way. But with these failures come learning opportunities and I learned a lot. Here are the lessons I’ve learned:

Investing Is For The Long-Term: There is a difference between investing and trading. Early on in my investing career, I was more of a trader than an investor. I was looking for short-term gains. This didn’t work so well for me. Once I learned to focus on the long-term and stay invested, I found investment success. If you really want to be successful in the stock market, you have to take a long-term approach. No one knows what the market is going to do over the short-term. But over the long-term, the market does rise.

Fees Add Up: I’ve invested in a handful of mutual funds and it wasn’t until my last job at a high net worth wealth planning firm that I realized how much fees ate into my return. Not only am I paying a fee for mutual funds, but that fee also eats into more potential gain through lost opportunity. To put another way, let’s say you are on a 2,000 calorie diet and you eat a few slices of pizza that total 800 calories. Not only did the pizza cost you 800 calories, but it also cost you enjoying other foods. If you had eaten just one slice of pizza for 250 calories, you would still have 550 “extra” calories to use on other foods or meals. With investing, these “extra calories” are simply your money that could stay invested in the fund and compound and grow into more money.

Have Play Money: Most people fail at investing because they give into their emotions. They buy and sell at the wrong time because of fear and greed. It’s understandable since money is emotional. The second best way I have found to overcome this is by having two accounts. I have a play account and a long-term investing account. Most of my money is tied up in my long-term investing account and its money I don’t touch. My play account though is for me to buy and sell as I please. It allows me to be emotional without causing harm to my financial future. Over the years, the two accounts tell the true story. My play account is barely making money, while my long-term investing account has done extraordinarily well.

Automate Your Investing: This is the best way I have found to overcome emotions when investing and my 401k plan taught me this lesson. I started out putting away $20 per paycheck ($40 per month) into my 401k plan. At first, I balked at the amount, thinking it will never turn into something meaningful. I ignored the account and looked at it a couple years later. Those $20 investments twice a month turned into over $3,000! After thinking things through, I opened a mutual fund and began automatically investing $100 into it each month. Now I do this with all of my investments. This is why my returns have been so good. When the market crashed in 2008, I kept buying every month. Buying at a discount meant more shares and more money when the market finally rebounded. By investing all of the time, you take emotion out of the equation. Too many investors wait for the perfect time to invest. The perfect time is always now since your money can start growing once you invest!

Ignore The Hype: Finally, you need to learn to tune out the media and the hype. They get you emotionally involved with the stock market all of the time. Tune them out. What happens today doesn’t matter if you are a long-term investor. Focus on the long-term. While the stock market may be volatile today, over time, things smooth out and the trend is positive. Look at a boat in the ocean as an analogy. If you are close behind the boat (short-term) the water is choppy as the waves are big (volatile). But as you move further away from the boat (long-term), the waves dissipate and you barley notice them.

Final Thoughts

If you can learn from my mistakes and failures, you will be well on your way to investment success. It all comes down to the basics. If you can master these, you can experience success when investing in the stock market. The overall key is keeping your emotions in check, which is much harder to do than many like to admit. By setting us an automatic investing plan you can keep you emotions in check. And when your emotions do try to take over, have a play account so you can act on the fear or greed without doing any real harm to your long term wealth.

Author Bio: Jon blogs at Money Smart Guides, a blog that helps readers get out of debt and start investing for their future.

23 thoughts on “Follow My Lead For Stock Market Success: What I’ve Learned Investing In The Stock Market

  1. Divhut,

    Thanks for sharing the lessons that you’ve learned. As a young investor, I try to keep my eyes and ears open to more experienced investor’s experiences. I’m just happy that there are so many DGI bloggers out there like yourself that are so willing to share their own mistakes and tips.
    Dividend Reaper recently posted…Looking Back and Moving ForwardMy Profile

  2. You have to learn from your own mistakes, but it’s the best if you can learn from other’s. This is why such posts can be very useful for other investors. I just wish I read more before I started to invest, so I could’ve avoided quite a few mistakes (most of them are quite similar to yours).
    The main message is don’t give up. Some wrong decisions on the way are unavoidable, but it’s the end result that matters.
    Roadrunner recently posted…What is the Best Passive Investment Strategy?My Profile

  3. Thanks for this great and level-headed summary of the lessons you’ve learned in your investing career. This is great advice for anyone getting started in the markets. Personally, the idea of having some play money to scratch the emotional itch of picking stocks is a great idea and can help beginners have their cake and eat it too. Thanks again!

  4. Thanks for your sharing. Nothing beats to be able to learn from somebody with experience.

    The tip about ignoring the hype is very well-known, but so hard to do. We sometimes catch ourselves thinking like ‘we have to buy it before we’re too late’, or ‘look this famous guy said that oil prices hit the bottom, want to buy more?’

    One thing that might help is: find somebody to talk to about investing. Me and Mr. Divnomics invest together, and always talk about our next steps. It really helps cutting out the noise and thinking things through before we act.

    • Great points. Even today, I sometimes question investing since we are at an all-time high. But I always go back to my 401k. I just invested every two weeks and ignored what the market was doing. Even with rising markets and crashes mixed in, my money has grown handsomely. It’s not easy to tune out the noise, but the more you can, the better off you will be.
      Jon @ Money Smart Guides recently posted…How To Become A Stock Market MillionaireMy Profile

  5. Thanks for your insights. Automatic investing is the best. It helped me out a lot in 2016. If I would have waited for the right time I would have missed all those gains.

  6. Thanks for sharing! Cool idea to have some play money. Although I don’t have separated accounts to really play, I do sell some options to maximize potential gains or just enjoy the premium on a certain portion of my portfolio.

  7. DH,
    Interesting insights from your career as an investor. Sticking with it for the long term and avoiding fees are two underrated factors for success. The market has a general uptrend, but you only benefit from that by actually being invested.
    When you take the hidden tax of inflation and add in the explicit fees charged by management companies and brokerages, investors can be far behind the eight-ball before they even get started if they aren’t cautious.
    Take care!
    – Ryan
    Get Rich Brothers recently posted…2017 GoalsMy Profile

    • You definitely have to take into account taxes and inflation when investing. In fact, I invest in the stock market over just saving in a savings account because of inflation. Just earning 1% in a savings account is putting me farther behind.

      As for taxes, you have to be smart when building your portfolio so that you most tax efficient investments are in your taxable accounts and the least efficient investments are in your retirement accounts.
      Jon @ Money Smart Guides recently posted…How To Become A Stock Market MillionaireMy Profile

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