Making Mistakes Is Part of the Investing Experience

We all have made investing decisions that cost us money. I've (RAH) made some real beauties that cost me dearly. I once bought a corporate junk bond with a 13 percent yield thinking that my $2,300 investment would mature at $20,000 in 12 years; but the bond became worthless when it defaulted. I used to buy mutual funds, and I never understood why my returns were so much less than the advertised returns for the same period. Then, I did not know how much fees and capital gains distribution taxes would reduce my total returns.

I routinely bought "bargain" stocks that were down in price only to see them continue to fall. I didn't appreciate the slim odds of making money on the downside. I used to be glued to CNBC, hanging on almost every word, but then I figured out that much of their banter was really meant to entertain rather than enlighten, so I turned off the TV. I subscribed to several stock newsletters, assuming the authors were gurus, only to observe that many of their so called great stocks tanked.

Now I understand that risk and reward are related so I'm leery of most high-yield stocks and bonds. I know that fees and taxes can reduce total return as much as 30 to 40 percent over many years. And I realize that up to 90 percent of all possible downside buy and sell combinations lose money. And, to me, much of CNBC programming is more like a three-ring circus than thoughtful investing advice.

I'm not overly concerned that I made so my errors in judgment; they were part of my investing education and any learning experience costs money. As long as mistakes don't wipe out your portfolio, you can build upon them and become a more savvy investor. Investing is like any risky endeavor; you win a few and lose a few.

Related Articles:

Be Skeptical of Stock-Picking Advice from the Pros
Coping in a Shaky Market - Jump Out the Window or Hang Tough?
Mutual Fund Fees Will Reduce Your Total Returns

Posted May 10, 2008.