In a recent blog post, Larry Swedroe wrote about a common mistake many investors make: having too much invested in the stock of their employer. Despite a long history of blue chip companies that crashed and burned, investors continue to repeat that mistake. But that’s hardly the only one. Here are a few more from a post published on April 13, 2008.
The Dividend Guy blogged about his top investing mistakes and challenged other bloggers to do the same. Over the years, I’ve committed my share of mistakes and have frequently blogged about them. Regular readers know of blunders such as having too much tied up in employer stock or buying into labour-sponsored funds for the “tax savings”. Still, it wasn’t difficult to come up with this list:
- Chasing Performance: At one time, my portfolio held one venture capital fund, one Science and Technology Mutual Fund, Yahoo! (YHOO), JDS-Uniphase (JDSU), Nortel Networks (NT), Millennium Pharmaceuticals (MLNM), Intel (INTC) and TD Bank (TSX: TD). Since I started investing in 2000, the reason for the motley collection of over-priced and speculative holdings was simply chasing recent performance without realizing that investors don’t earn past returns. The only stock that I made any profit on was Yahoo! and the only stock I hold to this day is the odd man in the list – TD Bank.
- Not Paying Attention to Expenses: It’s bad enough buying into the latest investment craze; it’s worse to find a high-priced way to do it. The Science and Technology fund I mentioned before sported a MER of 2.5% and came with a 5-star rating in the list of “best” mutual funds. I probably might have been better off speculating with a low-cost fund like the QQQ and saved the MER.
- Focusing too much on the minutiae, less on the big picture: In my early years of investing, I spent too much time on the minutiae of investing – should I buy TD Bank (TSX: TD) or Royal Bank (TSX: RY)? Should I buy Enbridge (TSX: ENB) or TransCanada (TSX: TRP)? – and less on the big picture -the overall asset allocation (cash, bonds, stocks and REITs), splitting equities between Canadian and foreign stocks etc. Not to mention the time and effort spent on the minutiae was fairly useless and a plan vanilla index fund would have done just as well or better.