Rule #1 Finance Blog

With Investor Phil Town

My Biggest Stock Market Mistakes (And How to Avoid Them)

Over the years, I have been blessed with an incredible amount of investing success – so much so that I was able to turn my meager income as a river guide into an investing empire. However, even the most successful investors’ journies are still fraught with errors and investing mistakes, and my journey is certainly no exception.

Nevertheless, as painful as these investing mistakes were at the time, I have learned a lot from them and have used them to become a better investor.

Now, I’m going to share with you my biggest stock market mistakes so that you can learn from them as well without having to repeat my errors.

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Investing Mistake #1: Horsehead Holdings

The story of Horsehead Holdings and why they turned out to be such a bad investment can be summed up in two words: poor management.

In the Four Ms of Rule #1 investing, I describe why researching a company’s management before you make an investment is so important. If I had followed this advice earlier in my career I could have avoided one of my biggest investing mistakes.

At the time, Horsehead Holdings seemed like a prime opportunity. They had a nice balance sheet and an attractive price, and I decided to make a substantial investment in their company.

Due to a complex series of investing mistakes and outright lies by the company’s management, though, I watched the value of my investment in Horsehead Holdings slowly make its way to zero.

What I Learned

The takeaway of my investment in Horsehead Holdings is that any company is only as good as its management. If you are wondering which investments to avoid, companies with poor or dishonest management always fall into this category.



Investing Mistake #2: NeXt Computers

Many people were burned by the dot-com bubble in the 1990s, and I am sorry to say that I was one of them. At the time, NeXt Computers looked poised to be the next big thing in technology.

I was thrilled by their potential and the splash that they were already making in the newly-booming world of technology. As one of the more high-profile tech companies at the time, they seemed like a safe entry into a brave new market.

The problem, though, was that the market was simply too new, and with brand new markets, you never know for sure which companies are going to survive and which ones are going to fall by the wayside. Unfortunately, NeXt Computers and the bulky, cumbersome workstations that they produced turned out to be one of the companies that didn’t make the cut.

What I Learned

Having learned from this investing mistake, I’ve decided that it is important not to invest in something too soon.

While the desire to get in on the ground floor of a brand new company or industry is certainly understandable, it is most often better to let the dust settle a little so that more information is available and the picture is clearer before you make an investment.



Investing Mistake #3: Chipotle

Let me start by saying that investing in Chipotle was not a mistake. In fact, Chipotle has been one of my most successful investments over the years and is a company that I often use as an example when describing what a wonderful buying opportunity looks like. However, while I made a lot of money investing in Chipotle, I could have made a lot more if I had avoided the mistake of selling too soon.

Today, I advise Rule #1 investors to never sell a company unless they have a great reason to do so. If you have purchased a wonderful company that is continuing to generate profits and grow in value then there is simply no reason to get rid of it. Sadly, I did not follow this advice when it came to Chipotle, and I learned a hard lesson in a dramatic way.

Shortly after I sold my shares of Chiptole, the price of the company skyrocketed. I was forced to sit on the sidelines and watch as a company that I had owned for years before selling generated incredible profits for the investors that were wise enough to hold onto it.

What I Learned

While there’s nothing wrong with taking some profits off of the table every now and then, make sure you don’t repeat my mistake by letting go of a goldmine company too soon.



How to Avoid Losing Money on Investments

The best way to avoid losing money on investments is to follow a proven investing strategy and never stray from it. In developing the principles of Rule #1 investing, I have created a set of guidelines and strategies that are designed to help ordinary investors maximize their profits and avoid losing money.

By following these guidelines and avoiding making decisions that are based on emotions such as fear or greed, you can pursue a successful investing career and hopefully avoid the business and investment problems that I myself have had to deal with over the years.

Ensure you always make smart investment decisions with my free cheat sheet for smarter investing.

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Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.