Have you ever made a mistake that was so bad, you just cringe every time you think of it? The thought just keeps popping up like a ball under water, and you just keep trying to shove it down. Or even when it’s long ago, it still surfaces just to remind yourself that you are human and far from perfect. I am sharing how I am doing in the stock market. Nothing sugar coated or hidden. The honest truth.
I made a mistake like that just last month. It was a costly financial mistake. A very newbie stock trader mistake. The only good thing I can say about it is that I will NEVER make that same mistake again. But let’s go back to the beginning of my stock journey.
Over two years ago I received my portion of the divided 401k and 403b from my divorce. I opened 3 accounts with a brokerage company and set it them up as self-directed accounts. One account was a ROTH account that I had had for years. The other two were a rollover IRA and a taxable account. Fortunately I had a friend who was willing to handle my portfolio.
Great Investing Book Was Given to Me
The “How to Make Money in Stocks” book was given to me about this time, and I was excited to educate myself on the very daunting stock market scene. Read Yes, You CAN Learn About Investing! to see how far I got in it. Spoiler alert! Not very far. I continued my job of teaching music to elementary kids which is a very demanding and time consuming occupation.
Starting Down the Stock Trading Journey
Last year I got a little more active in trading stocks. I dabbled a bit with the taxable account. I was really liking REIT stocks. That stands for Real Estate Investment Trusts. The stock price doesn’t really move much but the ones I chose gave me $.50 per share every 3 months. With the cost of shares about $20 each, that was a 10% annual profit. And one REIT actually kept inching up in price which gave me more profit. I was told that some people only invest in REITs so I didn’t mind getting a little heavier in them. They wouldn’t make me wealthy but they rock way more than a 2% CD (certificate of deposit) at the bank!
Getting Into REIT’s (Real Estate Investment Trust)
One of them started dropping in price. I made the discovery that the loss of stock price didn’t make up for the dividend it paid. So I sold all those shares of that particular REIT and was happy with the one that had made me extra money. In fact, I bought more of it.
Communication Is Key
During this time it was getting a little confusing on who was buying and/or selling the stocks in my portfolio. Sometimes I would buy a stock and see the other person sell it a couple of weeks later. Our communication was a little weak and not on the same page. Not a big deal, just growing pains of me being more active with the account. The portfolio had been growing nicely (not so much my doing) so I was happy.
Day Job Always Prevails
On February 25th, I had my big 4th grade performance. This is not just my students standing on risers singing to a cd with a few memorized lines interspersed. This was one class playing all the music on acoustic instruments, one class acting out a student written play, one performing a dragon dance, one playing songs on recorders and one performing in a drum circle. There were costumes, lighting, props, scenery, etc. similar to my Broadway Jr. musicals I had put on in the past. And only five grade level practices to polish it up. It also was right during the beginning of the coronavirus market crash. Things that looked so rosy were going to get ugly soon.
I had briefly checked my accounts pretty much every day. On Friday Feb. 21st I noticed the first giant drop, then a second drop on Monday Feb. 24th. Then after reveling in the great 4th grade performance on Tuesday, I checked it again. Another huge drop! What was happening? Something had to be done, but I didn’t know what.
What Do I Do With This Crash?
Wednesday came around, and I was able to check the accounts during the day. The market seemed to have taken a pause. Oh good. But still, what to do? Later that evening I communicated with the friend about the stocks. Seemed like a good time to ditch some. But again, I’d never experienced anything like this. If pretty much everything is tanking, do you sell it all? Part? Help!
Start Selling Everything!
On Thursday several stocks were sold, but not all. On Friday I had had a doctor’s appointment, and I took that extra time to dump almost every stock I owned. One stock had only lost 2 or 3% so I kept that one but put a stop loss order on it. (That means that I put in an order to sell it, but only when it reached a price point that I entered.) The stop loss order was triggered the following week when it dropped to that price.
Don’t Buy Anything During a Crash! Stay in Cash!
I even sold my REIT shares. They had dropped $3. But then they went up to $20. What did I do in the volatile market? I bought them back. Now you might think that that’s crazy to buy them when they are going up. Actually you should buy stock on the way up, not on the way down, but only if the market was acting correctly. There was nothing good about the market right then.
The Mistake Continues…
Then if that wasn’t enough, I got advice to buy another type of REIT, so I did. Quite a few shares in fact. This one had dropped a dollar from the day before so it seemed like a better deal, right? P.S. NEVER buy a stock on its way down. There is a very good reason it is going down and you don’t want to be a party to that.
Sell at a 7 – 8% Loss No Matter What!
At this point I hadn’t made any mistakes that couldn’t have been fixed with minimal damage. It was a very good thing that I had sold almost everything as my former stocks continued to plummet. But my mind set was all wrong. When everything else was tanking, the REITS had held pretty well. Right then I decided they were “different.” So when their prices started dropping, I was so sure they would pop right back up. And the more they dropped, the more determined I was to hang on to them to gain back the loss.
I Was Focused on the Wrong Issue!
And they kept dropping. And I was getting more and more “blind.” To be honest, I was more upset about the money I had lost during that first week by not selling sooner. That’s all I focused on.
But the BIG mistake was not selling those REITS. I lost almost a third of my portfolio because of my foolishness.
Always, Always Follow Your Rules
The one thing I had learned in that stock book was to sell when you have a 7 – 8% loss, NO MATTER WHAT! And yet I rode my stocks all the way down to a 65% and 80% loss. Yes, that is my big mistake that makes me cringe almost every day.
Postmortem’s Are Helpful, Although Painful
Here’s the irony of it all. When I could finally stomach it, I did a postmortem analysis of that big mess. I needed to learn from my mistakes. I created a spreadsheet and put in the stock prices on the day of their high – Feb. 20th, then the day I probably would’ve dumped them if I had had time – Feb. 24th, and the days I actually sold them. Then I compared them to the current prices at that time. Almost all of them had come back considerably, not quite there but close enough. There were a couple that were still pretty low.
It Always Comes Back to My REIT Mistake
And then there were my REITS. The two stocks I held on to. I told myself that if I didn’t have bad luck, I wouldn’t have any luck at all. But it was all my own fault. If I had stuck to the 8% loss, I would be just fine.
Expensive Lesson That You Can Avoid
So there you have it. The good, the bad, the ugly. Mostly ugly. The tuition for that lesson was pretty high. But I’m giving you a freebie. Whatever your rules are, stick to them. The market doesn’t care what you want or hope for. You have to respect it and act accordingly.
P. S. My new stocks are doing well and I know exactly when to sell at a loss and when to take a profit. I think there is hope for me, as long as I follow my rules. You can see my progress in my Week in Review posts.
Until next time,
Linda Davis (“Publisher”) provides this website (www.stockmarketgal.com) for informational purposes only. All information on this website is information of a general nature and is not intended to provide specific advice or recommendations for any individual or entity or on any specific security or investment product. In reading this website, you understand that Publisher is not advising you personally concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. In making an investment decision, each investor must rely on his, her or its own examination of the investment, including the merits and risks involved, should consult with his, her or its own investment, trading, financial, legal, tax, accounting and other advisors, and should not construe any information on this website as investment, trading, financial, legal, tax, accounting or other advice. From time to time, Publisher or her affiliates may hold positions in securities discussed on this website and will disclose those positions if applicable, but neither Publisher nor any of her affiliates receives any compensation from the issuers of any securities discussed. Publisher does not warrant the accuracy or completeness of any information provided, either expressly or impliedly, and expressly disclaims all warranties of any kind.