Find An Investing Mentor Or Coach

When you listen to very successful people, one of the factors they often cite as having contributed to their success is having a mentor.

The presence of someone other than yourself in your life that has your best interest in mind can be huge. A mentor can cut your learning curve in half by showing you the right way to do something, because he’s already been there and done that.

That kind of coaching is priceless.

When I worked at Spear, Leeds and Kellogg, first as an assistant and later as a trader, my mentor was a guy named Jimmy Morris. He was an incredibly nice man, and taught me everything he knew about how to make markets in a stock. When I left Jimmy and became my own trader, I was armed with everything he taught me during our time working together.

After Spear Leeds was bought by Goldman Sachs, most of us were gone within a few years and unfortunately lost touch.

It took years for me to find another mentor, but I did – and I’ve never even met him in person.

His name is David Gardner, co-founder of The Motley Fool.

When I worked on Wall Street, I had a short-term trader’s mentality. The thought of buying something and holding on to it for years was not in my consciousness. Most of the traders that worked on the trading desk had that same mentality.

It wasn’t until I started listening to the Rule Breaker Investing podcast that I learned about compounding your money over many, many years.

In the late 90s, I sat front row for the the birth of companies that would go on to transform the world we lived in: AOL, Amazon, Google and eBay, among others. I came very close to pulling the trigger on Amazon…but I got talked out of it. What a huge mistake that was!

Buying and holding Amazon from 1997 to now would have generated incredible wealth. The only question is: would I, in fact, have held it all this time?

The answer to that question is “probably not” – and the main reason would be attributed to not having had a mentor.

You see, a mentor will help you to not make the number one mistake most investors make – which is selling too soon.

Even the great investors can make this mistake! Case in point: in 1965, Warren Buffett invested $4,000,000 in Disney after meeting with Walt Disney himself. About a year later, he sold the stock after a 50% gain. Now, turning $4,000,000 in to $6,000,000 is a fantastic return…however, if Warren had held on to his investment, he would have made 2870 times his money. His total return would have been close to $11.5 billion.

If today’s Warren could have mentored younger Warren, I’m sure he would have told him to buy and hold.

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

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The Number One Mistake Investors Make…

Last week, on Twitter, The Motley Fool asked a question.

They asked followers to name a stock they either: sold too soon, held too long, or wish they had bought.

There was a total of 66 responses.

Here is a breakdown of the number of people that responded to each part of the question:

Sold too soon: 31

Held too long: 8

Wish they had bought: 27

As you can see from the breakdown, stocks sold too soon won by a very slim margin over stocks people wish they’d bought.

This is not surprising – and very insignificant. Hindsight is 20/20. Everyone regrets not buying Microsoft or Amazon after the fact.

What I want to focus on is the group of investors that sold too early, because that, to me, is a very crucial part of investing success.

People that said they regret having sold a stock too soon numbered almost four times the amount of people that regretted holding a stock too long.

Although the mainstream media discourages people from buying individual stocks, the fact is that finding companies that can go on to become big winners is not only not impossible, but is very doable for the average investor.

What is extremely difficult? The ability to hold on to these winners over time.

So…why is it so hard to hold on to winners?

This is a fascinating question, and there is a multitude of possible reasons.

Here are some very viable ones:

1. Buy and hold investing is not innate – it’s learned.

Warren Buffett told a story of a stock he bought for $25. It went to $15 before rallying to $30, at which point he sold it. Over the next few years, that same stock went to $200.

Ron Baron started his career giving clients advice on stocks to buy. He noticed that many of his selections went up five-and ten-fold years after he recommended them.

These are two of the best investors on the planet. They both learned the art of buy and hold through their personal experiences.

2. Fear of loss.

If you purchase a stock at $2, and it goes to $4, you’ve doubled your money. At that point, it’s human nature to protect your profits and sell.

3. Volatility.

I’m sure you’ve heard the stories of what $1000 in Amazon would be worth today if you purchased it when it IPOed. Sounds easy, right? Just buy and sit on your ass.

Well, it ain’t.

You would have to have been able to stomach multiple drawdowns during which the share price was literally cut in half.

In order to accumulate transformational wealth, you must be willing to experience, and fight through, gut-wrenching declines.

4. Impatience.

This is a huge challenge for most investors.

The truth of the matter is that investing is very, very boring.

The best performing stocks in history do nothing 90% of the time.

Netflix traded in the low 20s for two, almost three years, before it exploded and became one of the greatest investments in the last 25 years.

I personally know someone that owned Netflix early and sold because he became impatient. He left at least $700,000 on the table.

5. Owning stocks in the midst of a financial crisis is extremely difficult.

If you owned stocks during the Great Recession, you know what I’m talking about.

Owning stocks during this time was incredibly painful. Companies that had been around for 50 years were going bankrupt. If not for the government bailout, it could have been a catastrophe.

However, that moment in time gave us a chance to buy great businesses at steep discounts. If you bought and held companies that were thriving in spite of the economic environment, and held them, you would have done fabulously well.

It’s important to know that buying and holding will not always work out. That’s why we diversify and invest in multiple businesses.

However…the one time that it works out will more than make up for the times it doesn’t.

For example: let’s say you invested $1000 in three different companies and each company performed as follows:

  • Company number one lost 50%, so your investment is now worth $500.
  • Company number two lost 90%, so your investment is now worth $100.
  • Company number three went up 25 times in value. So your investment is now worth $25,000. That more than covers the $1400 you loss and then some.

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)