Two Big Investing Lessons I learned Cheaply

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From the desk of Harsh Strongman
Subj: Two bring trading lessons that I learned early (thankfully)


I saw Trader Theory pose a question on X:

What’s your biggest trading mistake and what did you learn from it?

Trader Theory is a Repurpose Pie early adopter.

As a general principle – I support people who support things I do (huge life lesson in there), so his account has been linked in the first line of this post if you are interested in following him.

To answer the question:

Back when I was 17 years old, I used to “invest” in stocks.

I didn’t know that much about investing back then but I wasn’t an idiot either. I could read financial statements, make sense of balance sheets and P&L accounts – not an expert but also not a newbie.

My net worth back then was $1000 (all cash). That was all I had at 17 and was a lot of money to me.

I saw a stock I *really* liked and invested my entire NW in it – the entire $1000 I had. (Mistake #1)

The stock went -20%.

Ouch.

I knew I should have sold.

But I thought “I’ve lost too much here. Let me hold on longer… in case it recovers”. (Mistake #2)

-30%

-50%

-80%

This is when I had had enough and decided to give up.

I sell.

I lost 80% when I could have only lost 20%.

Dumb thing and set me back a bit at that age.

Of course, today I realize how lucky I was to learn these two big lessons so cheaply.

Lesson 1: Have some diversification.

I invested everything I had in one stock. This is a very dumb thing to.

Anything can happen to an individual stock.

  • The founder can die.
  • The product can get banned.
  • There might be supply chain issues.
  • The founders may be running an accounting scandal.

At this point, you’re taking insane risks and basically gambling.

The first rule of investing is to never go all in on one stock.

Diversify your investments so you don’t lose massive chunks of your principal if something bad happens.

Mistake 2: I fell for the sunk cost fallacy.

I’ve already lost so much so I can hold on a bit longer.

I should try to make my money back from this stock.

I don’t want to book losses.

This type of thinking will ruin you fast.

Just because you fucked up doesn’t mean you should keep fucking up.

Regret is a wasted emotion.

Learn to cut your losses. Use stop loss orders.

Don’t hold on to ships that are sinking.

Regardless of the human tendency to “hold on for better times”, it doesn’t make sense when it comes to money.

Learn Now or Repeat What I Did

I’ve had clients lose millions of dollars just because they didn’t want to book a loss.

The stock is clearly going to tank (the promoter was caught stealing assets) but the guy says “If I sell now I’ll have lost $x”.

My brother – you’re already lost $x. You don’t want to lose more.

If you want to “make it back”, invest it in something better. Why would you continue to hold this garbage?

That’s really it.

Going all in and holding on sunk costs are two fallacies of human nature that we are all susceptible to.

Cats like fish and hate lemons. Men like making risky investments and hate selling at losses.

Unlike cats though, our natural tendencies aren’t always good for us.

Learn from this $800 mistake I made at 17, so you don’t need to lose $80k or $800k or $8M later.

– Harsh Strongman

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