I Lost Out On A $400k Gain. This Is What I’ve Learnt From It.

Staying focused is probably an underrated skill set to succeed in life. 

As humans, we are susceptible to distractions. According to Reviews.org, Americans check their phones 344 times per day. That’s once every 4 minutes!

Each time we hear or see a notification, we find it so difficult to resist checking our phones. 

This leaves us incapable of achieving output as our minds are always multi-tasking. 

In the same way, I would argue that staying focused is the key to achieving good investment results. 

Each day, we are bombarded by so many investment ideas. 

Personally, my team and I are covering more than 10 companies in our investing mentorship program. Our companies are chosen based on their strong business models, upside potential, quality, and management. We call them Super Stocks. 

For the average investor, there are multiple sources where you can gain investment ideas. There’s YouTube, Telegram, Instagram, TikTok, Reddit, Twitter, and investment forums.

By pursuing too many companies, you spread your focus too thinly. Instead of achieving more, we achieve nothing. As we load up our portfolio with more names, we start to lose track of everything. Our mind isn’t optimised to juggle many things at once, let alone an investment portfolio.

A sign of maturity for investors is when you know you cannot follow every stock idea and you are comfortable with that. It’s not a sign of laziness. Instead of chasing ideas, you focus on performing deep dives on names within your circle of competence.

JOMO instead of FOMO 

Fear of Missing Out, or FOMO – we hear this phrase very often in investing.

When an investor is feeling emotional, these emotions can cloud our judgement and prevent us from making good decisions. This is where most people end up making painful mistakes in the stock market that can be easily avoided.

In the past, this thinking led me to lose out on $400k worth of gains, making it one of my biggest investment mistakes to date.

For example, investors who are feeling FOMO exhibit the behaviour of chasing stock prices as it continue to rise – without regard for valuations. Or they buy a stock simply because their friends tell them to do so, fearing that if they miss this, the opportunity is gone forever.

The actual process of investing is understanding the company and doing proper valuation work on it before buying. When the process of investing is not followed through or rash decisions are made, the probability of losing money is very high. 

Here’s a counter perspective: there is nothing we are missing out on. The stock market will always provide us with ample opportunities. There was the dip caused by covid-19, and right now we are facing the market correction triggered by rising interest rates. These are opportunities for us to invest our hard-earned money into companies with sensible valuations.

Even if some of us miss these opportunities, there will be other opportunities in the future.

What about the Joy of Missing Out (JOMO)?

Back in 2020, I did my research on CrowdStrike with my group of coaches. Some investors within our community looked at CrowdStrike and believed the company to be an incredible business. They continued to study the business, ignoring other new “exciting” stock ideas that came along. As they had high conviction in CrowdStrike, they allocated the right percentage amount in their portfolio. 

Subsequently, the stock doubled and produced good returns for their portfolio. 

By making the deliberate choice to miss out on other opportunities, our investors made money.

So what is the secret to being successful in the stock market? 

The secret isn’t about buying many companies. It’s about buying the right companies and spending the necessary time to understand your companies. If your conviction is borrowed from others, it’s difficult to have peace of mind when the share prices of your companies are swinging wildly. That’s not a scalable and sustainable way of investing because you are always depending on someone for validation.

Some of you might be thinking, what if CrowdStrike turned out to be a lousy company after spending a lot of time researching on it? Or what if other companies produced better returns than CrowdStrike?

My answer is, so be it. 

There is nothing wrong with the process. In fact, it is normal and expected. There will be good companies and bad companies. Over time, you will learn how to differentiate them and refine your investment process. At the end of the day, there will always be companies producing better returns than our companies. You cannot possibly capture the best returns every year. As long as you are generating satisfactory returns for yourself, I believe you should not stress yourself too much. 

You can still keep your ears open, but avoid spreading yourself too thinly.

The key is to have a good process of identifying good companies and staying on track. I’m confident that you will reach your end goal faster this way.

Don’t Over-Optimise Your Portfolio

Has this thought crossed your mind before?

“Maybe I can sell company A first, then buy company B. When company B goes up, sell company B, and buy company A back.”

While it sounds easy to execute, in reality, things might go very wrong.

Let’s say your probability of getting one decision correct is 70%. Now, when you need to sell, buy, sell and buy (4 actions), the probability of getting all 4 actions correct is 70% x 70% x 70% x 70% = 24%. 

Most investors that I’ve met do this because they want to make a bit more money in the stock market. After investing for 10 years in the stock market, I seldom see long term success being created this way. Instead, these investors would do much better if they did not do anything to their portfolios. 

Long term performance comes from finding Super Stocks, not from timing the market. 

You might time the market correctly a few times. But apart from a few individuals like Stanley Druckenmiller, hardly anyone has ever become a billionaire from market timing. It’s all about buying Super Stocks and having a good criteria to qualify companies in your portfolio. (eg: the stock must have the potential to double within 2-3 years).

Closing

In the past, information was scarce. Today, information is abundant and focus is scarce. If we want to do well, we need to work smart by learning from other successful investors. 

But we cannot be all over the place. If we want to master how to do valuations, focus on that first before jumping on to something else. 

Go back to the principles of what proper investing is all about. Don’t FOMO, JOMO instead.

When it comes to investing, always remember that it’s our temperament, not our intellect, that helps us generate good results. Don’t over-optimise your portfolio.