Maybe I'm lucky. Or maybe it's just common sense. I've been involved in the investment advisory business for 30 years. And except for a few early mistakes buying real estate, the big financial hoaxes and bubbles that devastated so many investors never burned me. That made a huge difference over time. It allowed me to grow my net worth year after year without a single year of loss. I learned several lessons about growing wealth and avoiding the biggest mistakes average investors make. The financial life of the typical investor is marked by a plethora of hopeful speculations. Only a few dozen, at best, achieve their promise. My investment history is less exciting but more profitable. I get into trends only after they're proven, I get out as soon as they don't make sense, and I turn my back on 9 out of 10 opportunities that come my way. For example, in the 1980s, penny stocks were all the rage. The financial press was full of stories about investors who got rich by buying little-known companies at $0.50 per share. My boss invested in one and tried to convince me to do the same. I was tempted... but something inside me said to let this bus pass me by. I'm glad I did. My boss, a very savvy investor, lost 100% of his money on that deal. It turned out to be a scam. I remember thinking that if a sophisticated investor could be fooled by one of those cheap stock deals, I stood no chance. Another example: the recent real estate bubble. By that time, I'd been investing in real estate for more than 10 years. I knew the game. I'd made a lot of money. But by 2006, the houses I'd been buying were selling for 20 times their yearly rentals. I knew it was time to get out. I stopped buying, and I advised my friends to do the same. They thought I was crazy. I'm sure they wish they'd listened to me now. I'm telling you these stories not to brag but to illustrate an important point: You don't have to be a sophisticated investor to avoid making big investment mistakes. You can do so by applying a little bit of common sense. |
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