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What I learned losing (almost) all my money

Well, my portfolio has almost completed its life cycle. It started strong, hit a high and then fell off a cliff. So what did I learn losing all my money?

Lesson 1: Don’t trade too much.

When I initially began trading in my account I traded too frequently. Whenever I get access to new capital (if I ever do) I will certainly refrain from trading too much. I was so enamored with my access to capital markets that I would constantly check my portfolio value. This is not something I would recommend.

Lesson 2: Write down the reason for purchasing a security.

Before any decision that is made write down the rationale for the purchase. I believe this lesson is critical to investing. Why a purchase is made should always be written down because the criteria for selling an issue can be decided when the security no longer follows the rationale for the purchase. I think one of the reasons I traded too much was because I failed in explicitly delineating my reasons.

Lesson 3: Don’t buy low liquidity highly speculative equity issues no matter what their balance sheet says.

This lesson might seem highly specific and that’s because it is. I purchased equity in Nova Lifestyle with a majority of my portfolio. I bought Nova because they were extremely well-capitalized. With more cash than market value plus total liabilities, I assumed they were going to initiate a large share buy-back program. However, they did not. Instead they somehow managed to buy inventory at a loss. How a company could be so ineptly managed is beyond me. When I emailed their investor relations they responded by saying “the company sees a turnaround in their business, this said, it would be best to utilize their capital for inventory”. Yet they still managed to buy inventory for less than they paid for it. I am almost certain that they are either lying on their balance sheet now or are incredibly corrupt. To avoid this mistake in the future, it would probably be in my interest to check with their management to ensure their statements are accurate.

Lesson 4: Don’t fall for the narrative fallacy

Just because there’s a good story for a security doesn’t mean you should buy it. Unless… actually there is no caveat.

Lesson 5: Write down the reason for selling the security.

It is only with a record that improvements can be made. While on any particular bet it is possible to be lucky and unlucky the logic behind the bet is important. It is in this way, through maintaining a history, that writing can help improve future decisions.

Lesson 6: Don’t assume there is only one way but stick to one anyways

John Maynard Keynes traded securities and made millions by accurately predicting crowd behavior before the crowd. Warren Buffett and Benjamin Graham are on the opposite side by ignoring what Mr.Market thought of securities and focusing solely on the underlying business. Both approaches are successful, in making money, but don’t switch approaches in the middle of an investment.

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