Twenty years later and it’s time to revisit my six worst investing mistakes

You can be your own worst enemy when it comes to successful investing, so learn from my mistakes with this guide of what not to do.

Wealth editor James Kirkby reflects on some of the not-so-successful decisions he’s made.

The best investment presentation I ever heard I initially perceived as a waste of time.

Some years ago I was involved in an investment conference that ran over two sessions – one in Sydney and one in Melbourne.

The star of the show was Kerr Neilson, the billionaire investor who had created the Platinum Asset Management and was widely seen as one of the best investment minds in Australia.

I was keenly anticipating the Neilson session, but at that first event in Sydney I was terribly disappointed. The entire theme of ­Nielsen’s presentation was around investment bias – how your innate characteristics can define your ­investment performance unless you first understand them and then get on top of them to become the best investor you can be.

In common with many others in the audience, I wanted Neilson to tell me what was really going on inside investment markets at that particular time. Instead, the scholarly Nielsen ignored the issues of the day and delivered his message in a controlled – almost deadpan – manner that left me frustrated. In fact, I hardly listened to the presentation the first time around.

Fortunately, because I was part of this travelling show, I had to sit through the same presentation from Neilson a day later in Melbourne. This time the penny dropped.

Suddenly, I got it, and it permanently changed me as an investor.

To simplify, the presentation assumed the listener already knew the basics of investing – the difference then between the successful investor and the less successful version was often linked with bias, that blizzard of feelings and sentiments that push or pull us towards key decisions.

Neilson also believed that a willingness to examine our success and mistakes with equal vigour is crucial. When I look back at my worst investment mistakes, they have often been loaded with bias.

Here’s my bias-ridden worst ­investing mistakes:

Home bias

When I went to buy my first investment property, my main aim was not to lose money, because if your first investment property is a dud, it takes a long time to recover.

As a result, I was extremely conservative and opted for an investment in my own neighbourhood where I believed I knew every tiny detail of the property and its location.

The problem was that it was in an inner-Melbourne suburb and Melbourne property has been a weak proposition for many years. While I was keenly aware of this factor, I still wasted time and money on a mediocre opportunity.

The next time I bought an investment property I did not know the city – Brisbane – or the neighbourhood, but I did appreciate the wider opportunity in the market and I used a professional buyer’s advocate to help me pick the ­property. It was a much better investment as a result.

Loving a story not a stock

I am pretty close to giving up ­altogether on stock picking in small caps. There is, once again, a bias here – I find losing money on a stock much more of a big deal than making money on one – and in small caps, Neilson’s issue is writ large.

Small-cap stocks offer great stories, and I’m a sucker for a good story. But the problem is that a story is not a business.

Over the last five years, the small-cap allocation in my portfolio has changed to being almost entirely in specialist funds and exchange-traded funds – no more big wins, no more big losses.

The one that got away

I once interviewed an arrogant fund manager who wanted to give the investing community a key message: “Let your winners run.”

I was deeply sceptical about this fund manager because my impression was that he was using the theme as something of a public relations stunt (that is, I’m so successful at stock picking, my only problem is that I could be even better than everyone realises).

But in fact, he was onto something. For me, one of my worst mistakes was having shares in the phenomenal buy now, pay later company Afterpay and selling out too early.

Part of me is happy, of course, that I actually had the stock in the first place – and it tripled in price while I held it. The thing is it doubled after that. The amount of money involved was not significant, but I should never have sold the entire holding. Faced with such a situation again I would sell half the holdings and then, at least, I would retain upside.

The lesson is learnt – let your winners run. Whether I ever get a similar chance again remains to be seen.

Liking a stock too much

If you are a veteran investor, you cannot help but have a fondness for the stocks that served you well – you regard them as you might a faithful pet.

The problem here comes when you judge a holding on the basis of how good it has been to you in the past, rather than what it is doing for you now.

I have two stocks in my relatively small share portfolio of a dozen companies that share this distinction. Hansen Technologies was the stock that got me started in small caps and it went from $1 to $5 – but it’s been about the same price for the last four years. Similarly CSL doubled since I bought it first – again, its price is virtually unchanged for years now.

I bought these two companies as growth stocks – only they are not growing. I like them too much though – I should sell them, but I don’t. Will I ever? Good question.

You’re on your own, kid

Exactly 20 years ago, I started my own self-managed super fund. It was a major decision and I made it an even bigger decision by going full throttle and putting every penny I had into the fund.

But I made one mistake: in moving all my money into a SMSF, I did not think through the reality of being absolutely on my own – I had to pay for life insurance every year from the SMSF and it was extremely expensive.

Eventually, I thought it through and I dropped paying for life insurance entirely – I have been self-insured for five years.

However, if I had even left just a tiny amount of money with my former big super fund, I could have continued to pay life insurance each year through the fund, enjoying its tremendously discounted group rate.

In making big investment ­decisions, you need to take into consideration every single aspect of it. Something I failed to do with the SMSF.

The best mistake ever

This mistake was plain stupid, but I did learn to be flexible and that is always useful.

One day about a decade ago, I had many things to get done one morning – among them a decision to buy from my broker a small cap ETF on the ASX. I put through the order and noticed the next day that I had bought the wrong ­product.

In a fat-finger moment I had accidentally ordered a US market small cap ETF. Duh?

I was so busy that week I did not get a chance to rectify the situation that day and when I went back to sort it out weeks later, the ETF had done well – considerably better than an ASX version of the same thing. It was my first venture into US shares, and there have been many since. I still hold the US small caps ETF a decade later – it’s been a beauty … the best mistake.

You never quite conquer bias as an investor, but the more you understand it and work to eliminate it, the better you become.

James Kirby hosts the twice-weekly Money Puzzle podcast

Originally published as Twenty years later and it’s time to revisit my six worst investing mistakes