It's not whether we'll make mistakes in our investing lives, but what we'll learn when we do. In an attempt to shorten investors' learning curve, we asked our Motley Fool experts to share some of their mistakes. Read on to see what lessons these mistakes taught them.
Dan Caplinger: One mistake I made when I was younger has cost me thousands of dollars in missed opportunities, and I'll never forgive myself for making it. Shortly after I started investing, I began using a full-service broker that my parents had used. That broker urged me to use proprietary mutual funds managed by his company; because they appeared to be solid index-driven funds, I followed that advice. Only later did I realize these index funds had much higher fees than similar fund offerings outside the brokerage company.
By then it was too late. The funds had contingent deferred sales loads, which are fees the company tacks on when you sell shares within a certain period of time. In the end, it made sense from a cost standpoint to sell out, even though I took a 2% haircut on my investment as a result of those back-end load fees. That 2% wasn't a huge amount then, but having lost a quarter-century of compounding during some of the best years in stock market history, it's painful to think how much more money I would have had if I'd ignored that broker's advice and went instead with an independent, lower-cost fund company.
Todd Campbell: The more I read about the markets and the legendary investors who have succeeded in them, the more I recognize just how big a mistake I made in my 20s during the Internet boom and bust.
During the boom, even the most suspect of companies soared on expectations that the Internet's impact would be massive. Regrettably, a lack of experience (and admittedly a big dose of greed) kept me from avoiding those second- and third-tier names.
To make matters worse, I used out of the money call options with expiration dates that were three months out, or shorter, to invest in many of those risky companies. As a result, when Internet stocks tumbled, my portfolio value tumbled, too.
My misadventure taught me to stick with quality, control risk, and admit mistakes. Those lessons are reinforced by legendary investors time and time again. Warren Buffett, for example, has never been shy about sticking with leaders, and about admitting mistakes and acting quickly to correct them. I wish I had read (and followed!) more of Buffett's advice in my 20s.
I bought Tesla shortly after its IPO, when it was trading for about $27. I believed in the electric-car maker's product and technology, and thought the Model S could be a game changer if it lived up to Tesla's claims. Well, it did: The Model S debuted to rave reviews, even winning Motor Trend's "Car of the Year" award in 2013.
After that happened, Tesla shares quickly doubled, and I sold mine in the mid-$50s in early 2013 at a handsome profit, thinking I had made an excellent move. We all know how that turned out. One year later, Tesla was trading for more than $250 and I had learned a very valuable lesson.
Basically, I let the idea of a quick gain turn an "investment" into a "trade." Nothing had changed in regards to my reasons for buying the stock in the first place. In fact, those reasons were increasingly validated as time passed.
Nowadays, even after a huge stock gain, I think long and hard about whether anything has changed in my opinion for the company's future .
Dan Caplinger has no position in any stocks mentioned. Matthew Frankel has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.