My first investment ever was also my biggest failure. What happened: I purchased a stock. My shares rose 5%, and I sold on a whim. That stock became one of the best-performing stocks of the decade, and ended up worth more than 10 times the value I sold it for.
It was a brutal introduction to the investing universe. I felt bitter about it.
The stock I sold was Tesla. Talk about a terrible investment decision — in hindsight, I wish I’d held. The whole fiasco made me question my worth as an investor. Maybe I was doomed to be terrible. Maybe it was a sign I was bad with money, a lousy investor.
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It wasn’t. Years later, I know that for sure. Read on to discover why a single bad investment does not make you a “bad investor” and what that means for you, a potential buyer of stocks.
One common saying
“Past performance is not indicative of future results.” It’s a common saying that floats around the financial universe. It’s often used to defend poor-performing investments. Sure, they’re performing poorly now, but their future returns could be excellent. And it’s true.
The saying is used so often that it can feel like nothing more than a jumble of meaningless mouth sounds. But in our case, it gives us a big clue as to what a bad investor isn’t: Someone who has made one or more poor investment decisions.
Famous investor Warren Buffett lost billions of shareholder dollars on ConocoPhillips, one of his worst investments. Ouch. But many investors still trust Buffett and company to make investment decisions for them. What does that mean for potential investors like you?
“Bad investor” is a choice
A “bad investor” is someone who decides that’s what they are. It’s a choice. That’s good news! It means that to be a “good investor,” I only need two things: the decision to be a “good investor” from here on out, and the commitment to prove it to myself.
Example: I made poor investments, and I decided to be a good investor regardless. To do so, I refer to myself as a good investor who has made poor decisions. Over time, I prove to myself I’m a “good investor” by investing consistently in stocks that match my risk tolerance.
Becoming a successful investor takes more than wishing it into existence. I can’t fool myself into believing something I’m not. To become a good investor, I must first identify as one; then, I must prove my commitment to it by practicing good investment habits.
Three habits of good investors
Good investors vary in terms of habits, strategies, and lifestyles. But there are a handful of habits practiced almost universally by successful investors. Since my initial rough entry into the stock market, I’ve updated my investing habits to match those below.
Here are three good investing habits advocated by financial experts at The Motley Fool:
- Determine your investment horizon. I’m investing for at least five years.
- Measure risk tolerance. I’m highly tolerant of risk.
- Invest consistently. I invest monthly.
You can prove to yourself that you’re a good investor by determining what to invest in, measuring how likely you are to panic sell, and investing what you can afford consistently. Do this long enough, and it becomes clear that “good investors” make themselves.
Perks of being a “good investor”
Good investors make smart investment decisions, and they forgive themselves for making poor decisions. It happens. But good investors learn from their mistakes and move on. It doesn’t define them. Their brokerage holdings grow, and they often make money.
I’m choosing not to be defined by my very first investment decision. It was horrible, and because of it, I’ve learned a lot. Setting a long-term time horizon has helped me weather similar situations (like the 2020 stock market crash). Investing consistently helps me remain calm under pressure.
Made poor investment decisions? Maybe lots of them? It is what it is, and it doesn’t have to be that way from now on. Investors have a clear roadmap to making good investing decisions. Past performance is not indicative of future results. And for that, I’m grateful.
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