My Not So Magnificent 7 Investing Mistakes

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This week, I decided to look back over my investing career and give you a glimpse into the sometimes erratic and messy journey to investment bliss I enjoy today. This blog is about you the reader. So, why talk so much about me in this article?

Well, I hope that going through these mistakes helps you avoid the stupidity that I experienced over the start of my investing career. Also, I want you to have hope that you can still achieve retirement goals and have a pretty decent life, even if you get a late start and have enough children to field a basketball team like me.

Swing Trading

I started looking into the stock market and “investing” right about the time everyone else on the planet was also doing this, during the tech bubble.

What happens when you entered medical school? Bam, access to student loans.  Back then the interest rates were pretty cheap. I think my loans were at 3.25% then.  I was continually seeing stock returns during the internet boom triple that in a month. Some days alone were going up three plus percent.  I thought I needed to get in on the action. So I opened up a Roth IRA, and deposited $2000 of my student loan money into the account (not smart).

I stumbled upon a website that publicized swing trading stock tips and began to research swing trading and the amazing world of Japanese rice trading with candlesticks and doji interpretation.

I thought to myself, “This is it, I’ve found the secret to the stock market.” Maybe if this medical school thing doesn’t work out, I can become a full-time trader from the comfort of my dial-up modem and Pentium II processor computer.

                               “Intel Inside”

The first stock I bought was ELON. It did not go well. The plan was to buy the stock when it had consolidated for a few days to weeks, and then ride the breakout to a new all time high. Then I simply sell at the top. (What could go wrong?) The problem with this strategy is sometimes the breakout is a break down instead of up. I don’t remember if there was some bad news like missing revenue projections (because we all know nobody was making a profit back then), but I bought it and it dropped 10% pretty quickly.

investing mistakes

In hind sight, this was a lesson in the disposition effect. I believe this is why investing educator, Benjamin Graham said,

The investor’s chief problem and even his worst enemy is likely to be himself.

The rigors of medical school and planing a wedding soon caught up with me, and I lost interest in swing trading. I desperately held on to the stock, only to see it go down the drain.  I eventually sold it for a huge loss. Thankfully I was young and rather deficient in the income department, so I didn’t keep “investing” in swing trading.

Mistakes:

  1. I thought I could consistently beat the market with my limited fund of knowledge.
  2. I clung to a poor investment even after I had no plan and no knowledge of why I still thought it was a good investment in the first place.

Saving for Retirement in Residency

Fast forward a few years. I had completed school, and now was on to residency.  My wife and I had two children then. I actually had an income, and she worked part-time on weekends.  I eventually got my medical license and started to moonlight a couple of days a month (when I had some days off) at a local urgent care clinic.  With the money from the urgent care clinic, I would almost double my income as a resident.

So by this time, my wife and I were bringing in a high five-figure income. That was more money that I could imagine then.  You would think that I would investigate my financial future, and how to maximize the money in retirement.

Nope.

I have never gone back and looked, but to this day, I don’t know if my residency program offered a 401k or other retirement plan. No one every came to me and suggested I set aside money for retirement. They might have had a matching program and I just left money on the table.

I didn’t even think about the ability to save money in my own Roth IRA then.  I will never get those lower earning years back and the ability to pay lower taxes on the money contributed to a Roth IRA. Everyone around me seemed to barely be scraping by, and so I though I must be doing okay if I didn’t run up a bunch of credit card debt.  It is no excuse for me to blame other people on my own financial decisions though. As a father and husband I should have looked into my family’s future with our finances.

Mistake:

3. I didn’t look into the retirement benefits of my job.

Flip This House

“Home Sweet Home”

This mistake happened right along with my first job as a resident.  My wife and I decided to buy a house.  We had no intention of staying in the city where I trained. We had a maximum of four years there, but we decided to take out a 100% doctor mortgage on a home for that short time. Of course, this decision included costs such as insurance, taxes and home repair responsibilities.

I knew we had no intention of staying and no intention of making any major renovations to the home. It was in a no name neighborhood in the outskirts of the city. This neighborhood was already 10 years old when we bought, and there were a dozen other subdivisions just like ours that were popping up around the area with nicer, newer homes.

The city had enjoyed a nice run up in home prices the previous 10 years, but our neighborhood prices did not grow with the rest of the city. Little did we know the rest of the housing market was about to come crashing down. We put the house on the market in late spring for exactly what we paid for it four years earlier. The market had already begun to soften in that area, but no one was talking about a huge collapse yet.

I finished my training in July of 2007 and we moved after that. The house sat on the market for another four months as we made payments and we dropped the price a $1000 here and a $1000 there. By some miracle it sold in December. After realtor fees and closing costs, we had to write a check for $10,000 at closing.  That doesn’t even account for the money we paid to fix the leaky roof and other maintenance expenses while we lived there. It was also 18 miles from work so I had a hefty commuter cost to go along with it.

It could have been a lot worse. In 2008 that neighborhood experienced several foreclosures, and a couple of years later I saw a home that was almost identical to ours listed for half what we paid.

Mistake:

4. I bought a personal residence with a 100% loan for a known short time.

Family Values

We move to our current city and I start to make a regular attending salary.  I’ve slowly started to wise up financially.  We decide to rent for a while and concentrate on student loans. Also we didn’t want to carry two mortgages at once when we moved.  Our oldest was just about ready to start kindergarten and we wanted to get a feel for the city before we settled on a neighborhood with a good school system for him to attend. We don’t do much in the way of investing at this time, and it took 18 months before I was eligible for the 401k in my group.

I’ve never felt easy having student loans. I did better than many, but I still had around 80K in student loan debt when I finished residency.  Even though the interest rate was as low as it has ever been when I consolidated, I just didn’t like those hanging over me.  I know it doesn’t make as much sense to pay those off if I could get a better rate of return investing, but I wanted to knock those student loans out. That’s just my personal preference, so we threw any extra cash toward paying those off in the first 18 months.

After I finished paying the student loans, I had more income to save. I started investing and trading again. I still haven’t found any investment help at this point expect what our company fund manager told me. We will get to him in a bit.  I opened a trading account and I just found the wonderful world of options.

Options allow you to leverage your money and control a greater number of shares of stock without risking the same amount of money to buy the actual shares.

I started to trade options. Amazingly I was making money doing this.  The returns were good, but I really didn’t have a system or plan. I would buy and sell options, and in hind-sight I truly just lucked out with a string of correct trades.

Of all things, I told my mother-in-law about my great fortune and she requested that I take some of her money and trade options for her.  In what I would say is one of the most insane and stupid actions of my life, I agreed.

You’ll never guess what happened next.

What, oh, you guessed it.

Yep, I lost all my mother-in-law’s money in options along with the amount I had saved outside of my group 401k.  Don’t worry, I paid her back with interest and we can laugh (and cry) about it today, but it was an expensive lesson and could have made for some rough Thanksgiving dinners.

Mistake:

5. Trading options, futures, forex, and other leveraged vehicles is extremely risky and not for someone trying to raise a family and take care of a full-time practice.

6. I agreed to invest my family’s money when I had no idea what I was doing.

Investing for Dummies

Around the same time, I became eligible for my group retirement plan.  I had a nice salary and was able to save some money.  As I got older,  and I knew I needed to think about my future.  Our group offered a 401k and I started to max fund that. (Okay, so one good move.) I meet with our “very helpful” group fund manager and he sets up a portfolio for me of mutual funds. This consisted of several high cost funds, but he assured me that these were great investments and I didn’t know anything about expense ratios at the time. One even had a 5% load. (Thanks!)

I gladly handed over my money and proceeded on about my business of working and taking care of patients. I would look into my portfolio from time to time but didn’t pay much attention to the funds he recommended. A few years into this, I stumbled upon this amazing book, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John Bogle, and Jim Dahle’s site, White Coat Investor. I learned about low-cost broad market index investing and immediately went back to the funds my manager recommended. I told him all my funds had very high fees and asked him to  recommend any low-cost alternatives.

His reply was to give me a more “tailored fit” portfolio.  He said he would draw something up.

A couple of days later I get this “tailored fit” portfolio and all he basically did was give me a 7% allocation to Apple stock, which had skyrocketed lately.  He showed me how this brand new and improved portfolio was doing better than the S&P 500 if you backtested it. I told him all he did was add Apple stock and he didn’t have much to say after that. I asked him about Vanguard funds and conveniently our retirement fund didn’t have access to any.

Great!

Thankfully there was a self-directed option of our retirement plan and I could buy Vanguard ETF’s within that, so I transferred everything over to those ETF’s. Although I still had to pay a commission for each trade, it was still worth it in the long run.

This is a fake Yahoo portfolio I made up at the time of the recommendations of the manager (who we have since replaced thankfully).  I still keep it, just to remind me where I could have been.

It’s called the “Help My Fund Manager to Early Retirement” Portfolio.  I doubt it will catch on.

investing mistakes

S&P 500 up over 61% since I started tracking. My “Help My Fund Manager to Early Retirement” Portfolio up 1.14% since I started tracking this in January of 2013. (SPY quote added just to show where the S&P 500 started.)

 

Remember, I had already been in this portfolio for about 3.5 years before I even tracked the performance. It did better from 2010 to 2012 because everything was going up then but has since severely underperformed the S&P 500 return.

Mistake:

7. I trusted the fund manager I just met for five minutes when I signed my employment contract.

Happily Ever After

I hope y’all had a few laughs at my expense. As you can probably figure out,  I didn’t have a good foundation. My financial education growing up was lacking.  I got a late start because I went to school until I was thirty, and I tried to beat the market along the way.

Thankfully, I didn’t have too much money when I was in my stupid phase for the first 34 years of my life.  Since that time, I have buckled down. I’ve learned about index investing. We have a much higher savings rate, and drive more economical cars.

We also did a few smart things. Concentrating on paying off student loans, and renting when we moved helped greatly. Maxing out my group retirement plan, even in sub par investments was better than nothing.

The whole point is even if you make more mistakes than me, you probably have a high enough income to recover. You might have to work a little longer. You might have to increase your savings rate, but you can still retire financially secure. The best time to start is today.

Develop a plan. Implement the plan and get the entire family on board. If you are all working towards a common goal, that will help you grow together. Even the kids, as they understand more of what is going on financially, can contribute and take part in the pursuit of your financial goals.  My kids tell me they appreciate that I am trying to secure my future so that they won’t have to worry about me in my old age. That leaves them the opportunity to pursue their own dreams.

What kind of mistakes have you made? What did you do to get out of them? Have you developed a plan? I’d love to hear about them.

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Tom
Tom is a doctor and father of five with a passion for parenting and finance. When he isn't skateboarding, riding BMX, or jumping on the trampoline with his kids, he is reading and writing about personal finance. He helps high income parents educate and mentor their kids to become financially, emotionally, and intellectually self sufficient.

7 Responses to “My Not So Magnificent 7 Investing Mistakes

  • Everyone makes a few mistakes early in their investment career. I mean, I believe even White Coat Investor invested in whole life insurance! Hopefully with the increase of physician finance blogs, fewer people will make some of these mistakes.

    • Thanks WSP. I think is it good to show none of us have it all together all the time, (even WCI) but we can recover.
      In anesthesia if one parameter is a little out of whack, we can usually recover. It is when the abnormalities start stacking up that you get in trouble.
      Thankfully, I think I’m on the right track now, but hopefully the financial bloggers can raise awareness and financial knowledge so others don’t make as many mistakes.

  • Mrs. HIP
    2 months ago

    Ahhhh….Memories….. 🙃

    • Ladies and Gentlemen, we are honored to have Mrs. HIP in the house.
      You must be a very patient woman to stick with someone who made this many financial mistakes. This post doesn’t even go into all the mistakes I made as a husband. There probably isn’t enough storage on this server to write those down. 🙂

  • Looks like we have made some similar money mistakes my high earning friend. Nice point up top WaSP regarding WCI. We all make mistakes and as long as we can correct the course of action we will do okay.

  • I like the cockiness you had when you were younger!!! Cockiness, and fearlessness, is definitely a quality all wealth builders have to have, even if they get knocked around a little bit when they first start out. As long as you can learn from mistakes, you can turn some of those early failures into successes down the road. The key is to be humble enough to learn from your failures, and not to give up even if you screw everything up in the beginning. Cockiness is different than arrogance in this way: Arrogance is the unwillingness to learn. Cockiness is bravado, but a willingness to learn. Never lose the ability to always want to learn, as it’s the source of all wealth.

    • Thanks Bill!
      Thinking we know it all is a sure way to be proven we don’t.
      Thankfully the older I get the more I enjoy learning.
      The financial plan I have now seems to be working. I just need to keep it going. Thanks for stopping by.

      Tom @ HIP

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