Everyone makes mistakes investing — even the so-called “pros.” I’ve made mistakes, and I’m sure you’ve made some mistakes.
The truth is, we learn from mistakes. However, when it comes to investing, it’s better to learn from someone else’s costly mistake than it is to make your own expensive ones.
I’ve previously shared my best and worst investments ever. Now, let me turn it over to these “pros” who’ve lost millions investing. If you add up all of the money lost by the eight people below, it totals $2,700,100. That’s a lot of money from just a few mistakes.
Frequent trading can hurt you in two ways. First, you pay a lot in commissions for small gains, and that’s not what investing is about. Second, you don’t allow the power of compounding to work for you. Since you eliminate the time factor, your money doesn’t grow like it should.
Ilene Davis, CFP®
I bought 50 shares of MSFT back in 1986 or so. I know it was around $100/share. Back then it would go up to $110 and then back to $100 fairly regularly. As a broker, I got a commission discount, so I figured I was making $500 each time I sold and then repurchased.
Then, one day it didn’t go back to $100. I kept waiting, and waiting. I don’t recall when I looked at it, probably in the later 1990s, but I figure based on all the splits that had I just kept it long-term, it would probably have been worth $2 million.
I did the same with AOL in 1993 when it went public.
Total Loss: $2,000,000.
Paying Too Much in Fees
Fees can eat up a large portion of your long-term returns and make your portfolio underperform the broader market.
Simon Moore from FutureAdvisor
The biggest mistake we see is investors paying more fees than they need to in fees for ETFs and mutual funds. There’s a perception that higher fees translate into better performance, but in fact higher-fee investments perform no better than low-fee investments because of the fees.
William Sharpe just published some research that showed that investors can give up 20 percent of their total assets in retirement by paying more than they need to in fees. This one is worth flagging because the cost is fairly high and it’s extremely common.
Total Loss: $2,000 per $100,000 invested.
Find out more about Simon at FutureAdvisor.
Buying on Rumors or Bad Advice
These investors were basing their investments on word of mouth or rumors from “professionals” on the Street. Turns out, those rumors were simply rumors. Expensive rumors.
Todd Tresidder from Financial Mentor
My first investment was a complete loss. I know that doesn’t make for ego-pleasing or cocktail party conversation, but it’s the truth.
I had been hired by Hewlett-Packard, which was featured in the book, and placed on the fast track to success. My business background was extensive for a zitty-faced college graduate, and I had aced my GMAT test scores in preparation to begin an MBA degree program at business graduate school.
While at Hewlett-Packard I befriended someone in the credit department who knew about this “hot new tech company” that was buying HP mainframe computers to run its business. Its stock was listed in the NASDAQ pink sheets and my buddy had the inside scoop because of his job doing all the credit analysis for financing the computer purchases.
Well, being a brand-new investor with zero experience or savvy, I plunged all the money I had saved for graduate school into the stock. This decision proved to be one big mistake from the beginning.
You can read more from Todd at Financial Mentor.
Andy Prescott from The Art of Being Cheap
My biggest financial disaster by percentage was a penny stock I invested in while in college. A friend of mine was into penny stocks and he showed me how he had made a lot of money on one in particular because the price went up and down wildly. He would buy low, sell high, and make quite a bit of money.
I put in about $500 which was probably all the discretionary money I had; and for a while, I did really well. At one point my holdings were worth about $9,000, which was a ridiculous amount of money for me.
Shortly after that, the company went under and I was left holding worthless stock. I realized the mistake I made was that I was thinking about stocks like they were a gamble instead of a long-term investment.
Now, I don’t look for quick money, or a big score. I want my investments to grow slowly over several decades.
Total Loss: $9,000.
You can read more from Andy at The Art of Being Cheap.
Jon from Money Smart Guides
My mistake was with WorldCom in the late ’90s. It was a hot stock at the time and I was just looking to make a killing. It was fun to watch it jump $4 per day as rumors swirled about a potential merger with Sprint.
After the merger broke off, word began to spread about bad financials. I bought about $1,000 initially and when I lost half, I doubled down and invested more.
Sadly, it never came back. I even bought in again when it was around $5 per share. I ended up writing off the entire $3,000. I learned that you need to have a floor when investing. If I told myself I would sell if it dropped by 10 percent, I would still have a lot of my money. But I let emotions take over and I held on all the way to the end.
Total Loss: $3,000.
You can read more from Jon at Money Smart Guides.
Buy High, Sell Low
Knee-jerk reactions can cost you. When times get tough, you need to stay the course, and not sell low just to end up buying high again later.
David Bakke from Money Crashers
I had always been a fan of Apple stock. Towards the end of 2012 I upped my investment in that stock considerably. Unfortunately, it was right around that point in time that its value began to tumble — significantly.
I tried to ride out the storm but after about six months I gave up and got out of it entirely. What I should have done was stay the course, since it eventually recovered (for the most part). I’d estimate that I lost roughly $5,000 by doing what I did.
Total Loss: $5,000.
You can read more from David at Money Crashers.
Rob Drury from the Association of Christian Financial Advisors
The most common cause for losing money investing is simply not remaining consistent with one’s investment philosophy. Knee-jerk or emotional reactions to market movement almost always result in loss.
In order to gain on an investment, one must sell it at a higher price than one paid for it. If an investment is doing poorly, and one pulls out at a low, one realizes a loss. If one sees a stock or fund appreciate sharply, one may purchase it at a high, only to realize a loss when there is a downward correction. Over the last decade and a half, I have witnessed such missteps repeatedly.
For example, I had a young client in 2000 who had day-traded $100,000 to over $750,000 in only a couple years. I recommended he diversify his portfolio and move a portion into cash equivalents. He refused, and subsequently lost the lion’s share in the market’s downward spiral.
Total Loss: $650,000.
You can find more from Rob at the Association of Christian Financial Advisors.
Jon from Money Smart Guides
It was at the peak of the dot-com bubble. My grandfather gave us grandkids $2,000 as a gift. I wanted to invest my money, so I looked for a fund based on past performance. The Fidelity fund I chose was up 60 percent the past year. I got excited thinking I could double my money in less than two years!
After about six months, the bubble burst. When I sold, I had lost more than 50 percent of my money. I think I ended up with $900. I learned very quickly to not invest based on how it did last year.
Total Loss: $1,100.
You can read more from Jon at Money Smart Guides.
Tana Gildea from Compass Financial Consulting
Back in my days with corporate America, I had stock options and an ESOP with the company (MCI — pre-WorldCom days). The stock price was very slow-moving on the upside and quick on the downside. It hit an all-time but I didn’t want to exercise options or sell any of the ESOP because I didn’t want the tax hit on the gain.
Huge mistake! Letting the tax tail wag the investment dog cost me probably $30,000 as the stock never hit that high again and when the whole British Telecom/WorldCom merger craziness hit the fan, I left the company losing the options. The ESOP eventually went to $0 when WorldCom went into bankruptcy.
There were really two big mistakes: letting that concentration of stock stay in place for that long (you have to diversify whenever you get the chance) and making a decision based on the tax impact rather than on the investment quality and suitability. Ouch!
Total Loss: $30,000.
You can find out more from Tana at Financial Direction.
It’s your turn — have you made any of these investing mistakes? Share how much it cost you below!
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.