Hey, financial warriors! Investing is never easy, especially in the beginning. We’ve all made stupid mistakes that led to losses. Well, this time I’m going to share valuable lessons from financial planner and founder of Finansialku, Melvin Mumpuni, who even experienced the bitterness of losing 50% of his portfolio due to avoidable mistakes!
Eleanor Roosevelt once said, “It’s better to learn from the mistakes of others, because you don’t have enough time to make them all yourself.” So, let’s take a look at 5 investment mistakes we must avoid to make money faster!
5 Fatal Investment Mistakes You Must Skip
1. Starting Too Late
The first and most regrettable mistake is starting too late, melvin himself only started investing when he was around 22-23 years old. He was inspired by a friend who had started at 19. In fact, the younger we are at investing, the greater the power of compound interest working for us.
Imagine, many of my friends have started investing since high school or just started college! So, if you’re still procrastinating, take action now. Time is the most valuable asset in investing!
2. Investing Immediately Without Learning
This is the root cause of Melvin losing 50% of his initial capital!
In this world, there are two types of beginner investors:
- Type A: Just start.
- Type B: Just learn.
Melvin admits he’s Type A. He saved around IDR 10 million, opened a stock account, and immediately bought stocks based solely on recommendations from BBM groups!
Initially, he made a 50% profit (IDR 10 million capital became IDR 15 million), but Lady Luck isn’t always on his side. He suffered consecutive losses until he had only IDR 7.5 million left. Naturally, he was stressed and learned from this huge loss.
Important, although learning is mandatory, don’t become an extreme Type B, meaning you keep learning but never practice! Profitable investments are investments that are put into practice.
3. No Investment Strategy or Plan
Investing without a strategy is like driving a car without knowing the direction and destination. In the end, you’ll easily panic and get carried away!
There are three mistakes that fall under this point:
A. Being Affected by Fear and Greed
In March 2020, the Jakarta Composite Index (JCI) fell drastically by 33.27%. Melvin’s shares in Bank BNI (BBNI) also fell by around 36.75%. Because he didn’t have a strategy, he just stood still and did nothing.
In fact, an objective investor would have the courage to take steps, such as regular top-ups or averaging down to lower the average purchase price. Don’t let emotions (fear and greed) control your investment decisions!
B. Following the Crowd
A classic mistake, buying or selling stocks solely based on someone else’s recommendation. The impact? When the price drops, you panic because you don’t know why you bought them, and when to sell them! Always know the fundamental reasons behind every investment decision you make.
C. Irregular Investment
Investing is like growing coffee, it requires regular maintenance. If you have a financial goal (for example, a down payment of IDR 300 million on a house in the next two years), you must regularly set aside and invest money. For example, you might need a regular investment of around IDR 6.3 million per month to reach that target.
4. Too Much Diversification
The principle of diversification is good (“don’t put all your eggs in one basket”), but too much diversification can also backfire.
Melvin himself once had too many investment products that ended up being neglected. Currently, he limits his investments to mutual funds, stocks, and peer-to-peer lending. For stocks, he only holds a maximum of 7-8 blue-chip stocks to make them easier to monitor and optimize.
5. Impatient, Selling at a Small Profit
Patience is key in long-term investing, many novice investors rush to sell at a small profit. Melvin gave the example of his experience holding Bank BCA (BBCA) shares. He bought them at Rp 28,400 and they had already risen to Rp 32,250 (a profit of >12.75%).
Even though he had made a profit, he kept them because he knew, based on intrinsic value calculations, BBCA’s fair price should be higher than Rp 32,000! When you know the fair price of an asset, you will be more patient and willing to hold on to larger profits.
Conclusion
Hopefully, these 5 fatal mistakes can be valuable lessons for you! Remember, learning from others’ mistakes is the fastest way to success.
Five things you should avoid are, starting too late, investing without learning, having no strategy, over-diversification, and can’t wait.
Let’s start investing in stocks with the right strategy and start making your dreams come true one by one!
