We all make mistakes. We’re human. I’ve even made a mistake. Once…(Okay, maybe more?) Fortunately, none of my mistakes cost me $750,000!
Ronaldhino, a Brazilian soccer star recently made a $750,000 mistake. His mistake? He has a lucrative sponsorship deal with Coca-Cola, and at a press conference recently he was drinking Pepsi…That’s like a Hatfield marrying a McCoy. This was not exactly something that Coca-Cola was pleased with, so they terminated his endorsement deal. The net loss to him was ~$750,000. That’s a very expensive mistake.
It made me think about the most expensive mistakes I’ve ever made. And, I have a few of them that I could share! Over the course of time, I’ll put a bunch of my mistakes out there for everyone to see. This could be a recurring theme: the big financial mistakes of financial planners. That might even be a great book! (I know there is no shortage of mistakes, so a book might not even be long enough to capture my mistakes & those of my peers…)
The first mistake that comes to mind is an investment mistake. I was completely not sold on the whole dot com craze of the late 90’s. I couldn’t understand how companies that didn’t have a stable and predictable income stream could sell at values that seemed to defy logic. Companies with a cool name, a great slogan, and an idea but no revenue stream to go along with it could go public at an IPO at $20 per share on Monday and be trading at $150/share on Friday. (OK, I’m exaggerating for effect…but just a little bit!)
Everyone told me I was a 90 year old man who was living in a younger man’s body when it came to investing. I was called an “old fuddy duddy” by a lot of people who know me because I didn’t own any dot com stocks. After a few years of these kind of enormous profits being made by my friends, my neighbors, my clients (against my recommendations as I was in the asset management business at that time) and everyone who bought into these stocks, with me as a consistent voice of dissent regarding the valuations of these companies, I had finally been beaten down sufficiently to make my initial foray into buying a dot com. I decided to leave my 90 year old man’s investment philosophy and become a modern investor. Boy, did I ever pick the wrong time!
I had an old 401(k) from a prior employer and had not paid much attention to it. It was invested in a boring, stodgy, portfolio that was around 75% stocks and 25% bonds and cash and was very well diversified. So, what did I do? I sold the investments in that account and bought a few dot com stocks. Within what seemed like minutes (it was probably a few weeks), the stocks I bought had completely tanked, and my account was significantly depleted.
The “REAL” mistake I made? I lost sight of my beliefs, convictions, and an investment philosophy that had served me well until that point. I bought into the hype of the moment, got a little greedy, and got burned. Lesson learned!
What lessons have you learned from your worst investment ever? Have you changed as a result or are you going to repeat the mistake? Take a good look at your investments and your strategy. Are they consistent with your beliefs? Do you even have a consistent strategy or are you constantly tweaking it and chasing the latest craze? What makes you buy an investment? What makes you sell an investment? Are you setting yourself up for failure or success? Are there other, smaller mistakes that you are making on a continual basis (not contributing enough to your 401(k) plan, paying too much for cable, cell phones, lunches out, dinners out, etc……)?
Take a hard look at your financial behaviors. Are they making you money or are they costing you money? None of us may ever make a single $750,000 mistake, but if we add up all of our mistakes, small and large, we may very well exceed that figure over the course of a lifetime. Having the ability to be self aware (or developing that ability) and make behavioral modifications based on that awareness is at the very heart of progress. It works with money, with nutritional habits, with exercise, with school, and with virtually everything else in the world.
Staying in one place is not the way the world works. We are either moving forward or moving backward. If you analyze your mistakes, learn from them, and then make course corrections you will always be moving in the right direction. In spite of our mistakes, we can all reach our goals if we have a well thought out and planned approach.