Time Lost, Money Missed: Why Investing Early Matters

Even as a child, I’ve always been intrigued by the stock market and investing. I vividly recall playing the virtual stock market in college, crushing it, and thinking, “Damn, I need to invest real money.” However, fear held me back. I felt like I needed more money to start and lacked guidance on where to begin.

I remember a moment around 2005-2006, during college, when I suggested to my mother that she invest in Netflix or Apple. She even offered to provide the money for me to invest, but for some reason, I hesitated. Every millennial knew those companies were game-changers, yet I let the opportunity slip by. According to My Wall St if I had invested $1,000 of my mother’s money in Apple 19 years ago, it would now be worth $480k; $5,000 would be worth $2.4m. Imagine having that extra $2.4m in our bank account from a $5,000 investment.

Don’t let fear and uncertainty hold you back as it did me. There’s a price to pay for hesitancy and inaction. You’ll inevitably make mistakes along the way, and some investments won’t pan out, but that’s part of the learning process. Stick to a plan and strategy, and despite setbacks, you’ll ultimately come out ahead. If you need help getting started check out my article here.

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The Research Gap: Avoiding Blind Investing

A big mistake I made when I first started investing was not conducting enough research on the companies I was buying. This oversight is prevalent among many investors. Often, we base our investment decisions on “hot” stock tips from CNBC or the social media accounts of “gurus” without truly grasping the fundamentals of the companies we’re purchasing.

I firmly believe that success in investing requires a willingness to do some level of research. Buying stocks without adequate research or having minimal knowledge of the companies is akin to gambling. Would you purchase a car without researching its history, potential recalls, gas mileage, resale value, and safety rating?

If you’re not inclined to do the necessary research, I recommend primarily sticking to Exchange Traded Funds (ETFs). ETFs offer broad exposure to the market or specific sectors like technology without the need to invest in individual stocks. For those unfamiliar with ETFs, you can learn more about them here.

Don’t overlook the importance of research, as I did when I first started. The only way to make wise, informed investment decisions is to understand what you’re investing in.

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Caught in the Fear Of Missing Out Trap (FOMO)

When I first started investing, I fell victim to FOMO, which led to me owning too many stocks. Every stock and financial expert will advise you to avoid FOMO (and I agree), but the truth is you don’t know how you’ll emotionally respond to the market until you’re in it. I wrote an article about crafting your investor identity and understanding yourself, which is crucial for keeping your FOMO under control. Additionally, conducting research and having a checklist of requirements before purchasing a stock will help you avoid emotional investing.

Over-Investing

This transitions into owning too many stocks. We always hear that diversification is crucial to minimize risk, and that’s true, but over-diversifying or owning too many stocks is something to avoid. Some experts suggest that you should eventually own a minimum of at least 20 stocks. Why? If you want to own 20 stocks, buy an ETF; the average person isn’t researching 20+ companies anyway. Moreover, owning 20 or more stocks doesn’t necessarily mean you’re diversified if 90% of them are in the same sector.

In my experience, owning too many stocks diluted the potential gains from my top-performing investments and made it challenging to keep track of each company’s performance. If I had simply focused on my top 5-10 (max) performing stocks, my returns would have been exponentially greater than buying 20+ stocks. At the very least, I believe that at least 70% of the money you invest should be invested in 3-5 key stocks and an S&P 500 ETF. Warren Buffet’s portfolio, for instance, allocates about 80% to 5 or 6 stocks. Quality over quantity.

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Leaving Money on the Table: Failing to Reinvest

Failing to reinvest in companies I own has been one of my significant oversights. Outside of reinvesting dividends, I neglected to put more money into companies in my portfolio that I believed in, based on their fundamentals and company leadership. I mistakenly thought that once I invested in a company, I shouldn’t allocate any more funds to it, regardless of whether the stock price went up or down.

This oversight cost me potential returns, especially during market pullbacks when I had the opportunity to average down on fantastic companies but didn’t seize it. One vivid example is American Express (Ticker Symbol: AXP). I bought AXP a little over five years ago when the stock traded for about $120 per share.

When the pandemic hit a year later, it tanked, dropping to under $70 per share. Despite the unique environment, had I doubled down and purchased the same amount of shares at that time, my average cost per share would have dropped to about $95, bringing me closer to positive returns once the stock rebounded. As of today, AXP trades for around $217 per share, and I still hold my original shares along with additional ones purchased later.

Never fear continuing to invest in a company you already own. In fact, I believe it’s more prudent to focus on a few key companies, track their trends, and consistently invest in them rather than always seeking new investment opportunities.

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