This article is the second part about my mistakes in investing.
If you have not read the first part then it is HERE
I encourage you to read :-)
Training with investment
After graduation I opened my company. I work as a Freelancer practically all the time at the computer.
I thought I might as well invest in a semi-profession. Maybe DayTrading? So I took matters into my own hands. I started looking for free and paid online training. I finished a lot of them. However, I focused on technical issues alone and less on psychological ones.
I learned from training. Success in investing depends on:
in 60% of our psyche,
in 30% of money management,
only 10% of the system I trade with.
Of course, differently, but the proportions are roughly the same as above. I confirm that every beginner investor is best off starting with a training in investment psychology.
Trading is a difficult and very demanding profession. Human nature will disturb us. We will face fear and greed. Sometimes we will over-confident ourselves. Other times, we will have the desire to "play." Discipline and consistency are essential.
Broker loss and negative balance?
I learned and practiced demo accounts. I watched the markets. I have been up to date but have not invested real money yet.
In the meantime, it happened on January 15, 2015, when the exchange rate Swiss Frank (CHF) suddenly became very fortified with other currencies in the world.
As a result, the event was The collapse of Alpari UK broker and a negative balance by some clients of fresco brokers including Poland.
Once upon a time, it seemed to me that practically nothing could surprise me in investing because after all I have read so many books and I have completed a lot of training there is something like this (Black Swan) as with Swiss Frank (CHF).
I learned that a broker might fall and that you might be surprised to have a negative balance with the broker. So not only that you can lose your capital but you still have to pay to your Broker! Even with a small position, you could lose a lot. Fortunately, this happened when I was learning and practicing demo accounts. So do not keep all your money invested in brokers or stock exchanges - even the greatest and sure ones can fail.
Diversification and Options
I learned a very cool rule - I spend 10% of my monthly income on the investment. The capital is also divided into smaller parts because I invest about 1% of investment capital in a specific value. So if something does not work it will not affect my asset status significantly. In this way I manage capital. About running a home and investment budget I will write an article sometime.
In addition, I diversify my investments such as shares I have in shares, bonds and part in cryptocurrency, etc. I will say that diversification is differentiation of values in the portfolio and it is aimed at reducing risk. Something in style does not hold all the eggs in one basket. However, by diversification, the probability of a higher profit is also reduced.
Why am I raising the subject of diversification?
As a mid-level investor, I did not think that diversification could also be used to diversify the instruments used and not just the values. I specifically refer to the vanilla options for ETFs and Indexes.
I learned to use a new and little-known instrument in Poland which is Options. I was on a training course with basic options. It turned out that I started early trading without knowing exactly this instrument. There was a time when quite a lot of the values I was investing were options. Although they were diversified and not correlated with each other, they were all options :-)
Options I bought for a long term about 6-12 months, so the errors I made only when the time was nearing their expiration. By that time, I had some amount of them.
This ignorance cost me - caution ... about 30% of my entire investment portfolio! I still have a few options that will expire worthless.
You also need to diversify the instruments and not just the values.
It is not too early to try new solutions - better to learn. I propose to gradually implement in the new and correct the current knowledge and activities.
As you can see I made mistakes from the simplest to the more advanced.
I know there are others waiting for me but hopefully most of them are behind me ;-)
It is also good to exchange experiences with other investors because maybe someone has already made a mistake that we did not think and share it with us. This way we will use his experience :-)