Dangerous Investing

 

Having been investing now since high school, I’ve accumulated working experience managing and investing my own money. The concept of having your money work for you while you sit at home and outsmart the stock market is very appealing to the typical entrepreneur. Of course I should not say sitting at home but sitting in swim trunks on some yacht floating in the ocean… Now there’s nothing wrong with this in itself. The problem that I’ve seen and have personally experienced is the head-over-heels mentality that can overtake someone and cause them to make irrational and ignorant decisions with their money.

 

This is especially true of immature investors. When I say immature investors, I’m not talking about an age, I’m talking about experience. Personally, I would consider anyone who has only been investing for 5 years or less in their infant stages of investing. Literally experiencing the highs and lows of profits and losses is what can mold someone and put them in a place to make sound decisions. Surrounding yourself with the right people and learning from the right sources can streamline this process. 

 

I remember when I was in high school falling in love with being an investor and making my money work for me, I did something REALLY STUPID! I thought I understood the economy so much that I would outsmart the investment and make myself rich because I had a superior understanding of the economy than the experts who had been doing this for 30 years. So what I did, since I didn’t have much money at all, was go out and got approved for a credit card. That was my first mistake. I then went and purchased a speculative stock with money I didn’t have. Keep in mind I was in high school and without a significant income.

 

Needless to say, the stock collapsed and I was responsible for paying back the loan I took without a single thing to show for it. I literally watched my investment lose 80% of it’s value right before my eyes.

 

I wanted to share this experience with you because it is things like this that have made me an extremely cautious and focused investor. At the time, this was a very painful experience, but looking back now, it was a turning point in my paradigm that has shaped my thinking to be able to successfully invest today. Now, I carefully invest in stocks, real estate, my business, and in myself. I never get too excited over the next big thing or even go all in on something that I think is a “sure thing.”

 

The following is an excerpt of a satire I wanted to share which was written by Marc Lichtenfeld of the Oxford Club. He writes in the first person’s perspective of “Carlos Danger” giving us his 6 investing tips.

 

There’s no such thing as too much risk. Like my relationships with women (and there are many), the riskier the better. When it comes to investing, I also take on as much risk as I can. How else am I going to make the big money? Uh, not that I need it. I don’t. Really. Whether I’m tweeting pictures of myself to 22-year-old women I’ve never met, or investing in penny stocks, it always works out for the best. So take those big risks. What could possibly go wrong?

Never admit you’re wrong. If you believe in an investment, hang on to it no matter what. Only weak people admit they’re wrong. In the markets, that means never set a stop loss. That way, I never sell at a loss, which is the same as admitting I was wrong, which of course I wasn’t.

Using judgment is boring. Making sound, practical decisions is for ordinary men, not for Carlos Danger. Where’s the fun in that? Like gold? Put most of your assets in it. Love energy? Buy only energy stocks. When I invest, I buy what feels good at the moment. 

 

Asset allocation is not for men like Carlos Danger. I go with my gut. I don’t worry about what will happen if my wife finds out I invested her entire retirement account in Rick’s Cabaret (Nasdaq: RICK). If she is upset, I will just apologize, sell the stock and buy it again a few months later.

Don’t worry about the future. I sure don’t. If I need money today (which of course I don’t), I sell my stocks. I don’t concern myself with the long term. Things always work out for Carlos Danger. There is no reason to invest for five or 10 years down the road by owning quality companies that raise their dividend every year. A stock like Johnson & Johnson (NYSE: JNJ) is not a Carlos Danger stock.

 

Pay no attention to cost. Carlos Danger doesn’t worry about cost. That’s for lesser men. I pay whatever price has to be paid and so should you. Some people claim that keeping your costs lower is an important way to increasing your returns. But I give all my money to my broker. Sure, he charges me 1% plus other fees that I don’t even know about. But this way, I don’t have to spend time looking after my money. He does it. I’m sure he cares just as much about my money as I do. And that way I’m free to pursue other, er, interests.