Every investor makes mistakes (even really experienced ones). It’s how we learn from those mistakes that tell the story of how our investing lives go. In fact, making mistakes can actually make us much stronger investors as we learn what not to do (and, thereby, what to do).

To become a better investor it’s important to not just examine your own mistakes but to look at what your fellow investors have done wrong. We did that on the September 15 edition of “7investing Now” with Anirban Mahanti joining Dan Kline to share some mistakes they have made while also looking at a number of mistakes you shared with us on Twitter.

It was an illuminating experience where we all can learn from each other. Mistakes, of course, can be painful as they cost you money, but in the long run, they can be valuable if they help you grow. By sharing what we’ve done wrong — and so many of these mistakes are nearly universal — we also share how we coped and recovered. It’s a way to grow and get better than can benefit all investors.

A full transcript follows the video.

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Dan Kline: We’re going to talk about the worst investing mistakes we’ve made.

I’ll go first and I’ll go quickly. For me, it’s when I was young, and I made no money. I mean, like, you know, $18,000 to $25,000 a year, I had a company 401k match, I had a little bit of let’s call it family money. So I was you know, I had a little bit of a backstop to live on. And I didn’t fully fund my 401k which had a match. And there was probably a decade where off and on I had jobs that offered some sort of 401k. And I just gave away free money.

And now I know that I’m sure back then taking $25 out of my meager paycheck seemed like a lot. But in retrospect, now that I’m you know, it’s 25 years later, that money would be worth a lot. So it’s actually the kind of thing that most people it’s a mistake a lot of people make, and it’s one that I made but Anirban, as I try to queue up the share screen here and pull some of yours up. What is the one that comes to mind for you?

Anirban Mahanti  24:32  I’ve done the same thing and as a family than the same mistake that so we don’t have a 401k obviously yet, but we have something called superannuation guarantees, which basically says that the every employer has to pay 10% of the wages that you make as retirement funds that go into your retirement. So that’s automatically put in to a retirement account. But you can match that up to a certain value every year. And in our first five years in Australia, we didn’t match that.

We could have, but we didn’t, right. And that’s just an opportunity lost for not just for putting aside money, right? Because once you put the money into retirement account, you can’t access it until you’re like 65, or something like that. But also compounding. So that’s one of the mistakes, what my ultimate biggest mistake is actually not that.

My biggest mistake is not to start earlier. I personally, because for two reasons. One is of course, length of compounding. And, and the other is just if you start earlier, you have less money at that point. And I’m not trying to say that I have lots of money, but as you grow older, you make just more money and more savings versus when you’re younger, it’s great to make some of those mistakes that you would make, as early, you know, initial investors with that last one, right. It’s good to learn young and make those mistakes so that by the time you actually have decent savings, you can actually come out at a great rate. So I think those are, I would say at the top of my list.

Daniel Kline  26:04  It’s so funny that you mentioned that because as we pull up some of the Twitter comments we got here, I have our very own, Matt Cochrane and he said, starting so late and late in life, and I don’t think Matt actually started all that late compared to what some people can. Rob said, not starting sooner. And then he has the sad shrug emoji, which is you know, that that brings it home all the more. Huge says not starting investing sooner, you can never make up that opportunity cost, time is short.

Anirban, I’ve started just a few weeks ago, my son is working, we’ve talked about this, I’m I’m making him take 30% of his paycheck and put it in an investing account and buy fractional shares of good companies, we talk about the companies I stopped him from buying things that I truly think are bad, but I’m not stopping him from buying things that I’m a little bit mad on, because these are very small bets. You can be as specific or as nonspecific, as you want about your child. Is this the type of thing you’ve discussed? And your child’s little bit younger than my child?

Anirban Mahanti  27:05  So my daughter is only 13. We have a trust account, we set up maybe, 4-5 years ago, which specifically with the intent that you know, this is money you’re putting aside that might be useful for her. And, yeah, so I really think that strategy of you know, actually, because your child is older, and I think you know, they are making actually some earnings and that they can invest, they can invest in their own account. That is fantastic. I think that’s absolutely the right thing to do.

I have a friend from the Netherlands, and what I’ve discovered him and his nephew, they all invest like when they’re, like, you know, from when they’re 16 or 18. Because they all work. And they have a high culture of savings, and a culture of investment. So I think, you know, buying this fractional shares, I think this is fantastic. Exactly, you know, I’m doing that on my daughter’s behalf. But I would do exactly what you’re doing. I think that’s the way to go

Daniel Kline  28:08  My goal because right now my son lives with me, I suspect he’ll do that, you know, probably for the next somewhere between three and five years. I want him to at the end of that term, see, oh my god, like I’ve only put this relatively minor amount in and here’s what it’s worth, like I would expect it will be you know, a five-figure amount and perhaps a let him use that as collateral to loan him money for a down payment on a house or something like that.

And really teaching why even when he’s on his own and has those expenses, how much that money means it’s a lesson I wish I had learned now, the rules were different and I’m sure you understand this where we’re similar ages is that there was no commission-free trading, it was not there were no fractional shares. There were a lot of bars that don’t exist now. But now that it’s so easy, it took me like 10 minutes to set up a custodial account for him. And then I decided I wanted to have an account on that and it took like 45 seconds to create my account once it already existed, but let’s keep it moving here.

So many of you commented We appreciate it. Barbara Billy’s Zito says selling Netflix and we get the frowny face emoji here but we but we used it for a downpayment on our home so it cushioned the blow. I actually don’t think that’s a mistake. I think if you sell a good stock to buy something, not you know, if you always want to take a trip around the world and that’s why you were investing now maybe she could have sold something that didn’t have the upside of Netflix but I actually don’t think this is a mistake your thoughts here Anirban?

Anirban Mahanti  29:37  I wrote about that. I call it my $200,000 mistake of selling Netflix, you know, so you’ve already hit the nail there. I think if you want to fund something out of your investments, I think then finding stocks that you don’t believe in is of course number one point right or maybe sell some losers. They in banking, some losses tax losses that you can write off next year or whatever.

But another mistake, I think, you know, and this is more than like a newbie or a psychological mistake is to sell your winners early. Right? And you sell them because you are spooked about something or you’re you worry about, you know, the fast depreciation of the shares and things like that. That can be really costly, because again, you can’t get to a 10 bagger without going through a 3, 4, 5, 6, 7, 8, 9 bagger, right? So that process is exactly that, you have to go through that. And if you if you cut the process early, you’re just not gonna get it. So it’s being incredibly patient with selling is a good thing. And it’s a really hard art to master. And nobody, I think can master it totally, I guess unless you’re Warren Buffett. And that’s a different matter altogether.

Daniel Kline  30:54  Warren Buffett’s made some mistakes too. But money covers a lot of that. But that leads right into our next one from beach chair investor, who I hope is beach chair investor because he or she is sitting on a beach chair, not because he’s made big investments in beach chairs, because that’s a commodity they cost very little I live right near the beach. That is a joke of course. “Not thinking long term” biggest mistake was buying Roku at $32.75. And selling it 36.50. 2nd biggest mistake was telling myself to wait for it come to come back down to buy it again.

We’ve seen this over and over, we’ve heard some very famous investors talk about, you know, setting a strike price for Amazon and then never seeing that price ever come up again. This can be problematic, if you like a company, I am not a fan of selling it until you no longer like that company or you retire, you get to the point where it’s time to start cashing in your chips. And that’s why you invested. I wish I owned Roku at those prices. That’s actually not in my portfolio, but it’s one I’ve talked positively about for a long term. Anirban your thoughts on this one?

Anirban Mahanti  31:55  I think you’ve hit the nail there completely. I mean, you know, like, you know, what’s called a penny pinching is not a good idea, right? You know, if you think you want to buy something at, you know, $30 $35 and the stock is at $38, she’s paid at 10% more get it because the whole reason to buy would be you think it’s going to multi back right? At the bare minimum, like, you know, the I think of investments and I say, Okay, my bare minimum threshold is I need to double in five years. If it’s gonna double in five years, I’m not going to worry if I’m going to make 90% or 80%. That’s pretty, you know, okay. Right. So I am willing to sacrifice a little bit too. But if I like a position, if you like a company, it’s great to have a startup position in it. And the same thing. Yes, I don’t wait for the price for you to come back to exactly what i what i think is the exact valuation because there’s no such thing as exact valuation.

Daniel Kline  32:49  Yeah. And that speaks to something people ask us about all the time when it comes to 7Investing picks. Well, when should I buy them? Or you made this pic three months ago, and it’s up 20%? Well, I think all of us have that logic. Me maybe more conservatively than anyone else. But even when I’m picking a steady, steadfast retail company, I am thinking this stock can triple in five years. So if it’s gone up 80% it still has 220% to go now. Does that mean as you look at our picks, there might be others that you consider a better deal? Maybe. But for the most part, I don’t think this is an area where you quibble.

Now, have we seen tech stocks that have gone up 400% in a month during the pandemic? Yeah, we have, and that might be something where you go Okay, like it had all the growth I expected. So even though I love the company, geez, this may not grow again for a while. We appreciate so many of you participating on twitter $307 fool says, taking some years off Roth contributions after a career change and massive pay cut, even just $50 a month would have been a better choice than zero. Anirban I’ll let you go first here assuming you have some Roth experience, even though that is a uniquely American concept.

Anirban Mahanti  34:01  Well I don’t have any like, you know, again, I don’t have any experience with this, but you’re making guesses you can make contributions and you couldn’t, you didn’t it’s just costing you compounding right so that’s you know, it’s costing you compounding it’s not you know if you can make the contribution I think you should always but that’s just me,

Daniel Kline  34:18  I think the muscle memory is important that even in a period where things get tight, you might slow down your investing. We had a span where we had to do a new roof and a new air conditioner at our at our about to be sold other vacation home. And it was like oh god for a couple months, like there was no extra money. So maybe we cut in half what we were putting into the market, but we still put money into the market. We still sort of went through those exercises. And I think that is very important to do.

We’ve got just a few more of these. To get to a an array says investing conservatively. When young, I’m going to push back. I actually think if what you mean is investing conservatively that you invested in you know, putting it in a bank account or buying CDs, well sure those are bad investments. But if you put it in like, I don’t know, Walmart stock or things that are just like considered pretty conservative stocks, I think if you’re young, that’s actually probably fine. Not everybody has to put their money in the latest SPAC that might go up 10,000,000,000%.

Anirban Mahanti  35:24  If you’re young, it’s all about finding your style, your approach, how do you invest? Right? So, you know, like, that’s a good, you know, why everybody starts, you know, investing conservatively. Does anybody reads about, you know, mortgage companies and how they can compound for a long time. So you start there, that’s a great place to be. So, you know, putting your money in businesses with network effects, or staying power with those big moats that are still growing. It’s a great place. So I think that’s fine.

Daniel Kline  35:57  And forgetting the specifics of these two companies, because there was a fraud issue here. But investing in Starbucks is more of a sure thing than pre accounting fraud, investing that Luckin Coffee might become the Starbucks of China like, like, there, there is a reason, some investments and yeah, especially if your timetable is long, just owning a bunch of really good companies. But it is important to note that the good companies today are not always the good companies of tomorrow.

So you know if 1982 to me bought some IBM and GE at some point, you have to recognize when those companies have jumped the shark so to speak, that can happen I want to power through all of these especially because I don’t know how to skip them. And hater ally says missing Moderna at $22 a share. Anirban go first on this one.

Anirban Mahanti  36:45  So that you know this specifically, I wouldn’t say it’s a mistake to me doesn’t appear like mistakes. And I’ll explain this, we there is going to be always an example or two or three or many more that you know you did you know you and I or anybody else didn’t invest in, right. So I didn’t invest in Roku. Well, I could look at Roku and say that I did invest in it. There was some reason if there was a good reason for not investing in something at that point. Didn’t understand the company didn’t understand its future. That’s good enough. I mean, passing up on ideas because you didn’t get them. It’s okay.

Daniel Kline  37:22  Yeah, I don’t lament the companies I didn’t buy because I didn’t fully understand them. I lament the company’s I 100% understood. I brought up Roku before, Roku, you know, and I don’t own Netflix because Netflix like Amazon is a company I have a lot of 401k exposure to which in pretty much every tech fund you can buy. So I feel like I own enough. But yeah, when you understand a company that’s very different than buying a biotech company, which I wouldn’t necessarily or a pharmaceutical company, that I wouldn’t necessarily expect everyone to follow along.

Next one is a little bit funny. It’s It’s from our friend Ken McInerney. Ken is the the father of a member of our team. I will not I will not fully disclose that. But I will be seeing Ken later this year in person or actually early next year. Aside from not maxing out my 401k contribution earlier than I did my work favorite worst mistake was rain forest cafe. We waited on line for lunch and thought it was just about the coolest for a restaurant. Apparently the menu matters more than jungle animatronics.

Let me elaborate on this because, Anirban, I’m not sure this is one you necessarily would have ever had exposure to. But this is a destination restaurant that used to be publicly traded. And if you went on a Friday night, or a Saturday or a Sunday afternoon, you were under the impression that this was the most successful restaurant chain in the world. Because there was a very long wait. The problem is, if you went on a Wednesday night or Thursday afternoon, these restaurants were dead. Unless the few there’s there’s still one at Disney Springs, which is a tourist area. So that would be busy.

There are a lot of restaurants like this, where the concept seems to work, but it doesn’t work based on the real estate it occupies. So a cheesecake factory which takes very big real estate tends to do well all the time with mall traffic in the places it’s located. A children’s themed restaurant that needs a lot of people to eat there that has very, very high rent doesn’t make sense if it’s only doing business-like 30% of the week. That’s sort of a subtlety where sometimes your eyes don’t tell you the whole story.

I’ve mentioned Starbucks a lot. It’s one of my bigger holdings. But Starbucks has put a lot of effort into driving daypart sales were part of the reason they have their loyalty program is they could say hey, Anirban, we see you coming in the morning. How about you come in at three o’clock and have a cookie and their margin that cookie is really really good, especially if it’s your second visit of the day. So this is one of those where yeah, an eye test is important. But you want to go all the time

I actually had a former boss of mine, Roger Friedman, who was my boss at a long-defunct Motley Fool product asked me when Taco Bell’s breakfast first came out to just go sit all morning at a taco bell and take a sense of what the traffic looked like that was that very anecdotal. Absolutely. It was one Taco Bell, though in a very. But that kind of data if you extrapolate over maybe visiting a few starts to give you meaningful action points. So we’re gonna race through this. We are running out of time here. Tom Robinson says, investing in speculative companies short term. Anirban I’ll let you have this one. Because there’s so much we could say on this.

Anirban Mahanti  40:27  I think it’s basically it’s all said, you know, speculative and short term, the combination is basically it’s basically boils down to gambling. So yeah, if you know you’re doing that, that’s fine.

Daniel Kline  40:38  Yeah, I like to gamble. But even there, I gamble when I understand the odds. You know,  if I’m sitting in a video poker machine, I know exactly the game I’m playing and what the standards if I’m playing blackjack, I know the move I’m making. And even if I’m choosing to make our move that that’s risky. I’m choosing that which I don’t gamble when it comes to investing, focusing too much on valuation and missing the potential of the business. That is something that’s happening quite a bit in this current era of let’s call them frothy valuations.

Anirban Mahanti  41:11  So I think this is a good one, because I think at some point, or the other everyone, I think falls into this one. So I think this is good, because what you need to really think about is you need to, you know, as this of the world has shifted from tangible assets to intangible assets, basically, from asset heavy to as applied the asset like businesses, you can’t really value the same way people value the asset heavy businesses, and they have a very different economic structure because you can upfront spend if you’re very sticky, to reap a lot of operating cash flow, or free cash flow down the year. So I think that’s that’s one that’s easy to I think, miss and therefore misjudge.

I’m not saying the valuations are not frothy valuations are look expensive, but some of the valuations can be explained. because of that reason, I’ll actually say another, like related to this. Sometimes what happens is, is if you’re buying into I guess related to this is sometimes when you’re buying to charity, consensus, you land up with lower returns than not buying. So buying things that are misunderstood, or people hate or people think of them as not as profitable.

A great example has been, the Apple has outperformed, say something like Alphabet over, you know, 3, 5, or 10 year windows, largely because Alphabet shares well, you know, we’re the go to shares, and then we’ll go to shares because, well, you know, it’s network effects, they will use a search and oh, Apple is like a hardware business, right? But if you look at the free cash flows over time, you’ll realize Apple was the free cash flow king and still is the free cash flow King. So on a valuation basis, Apple was actually mispriced.

So I think thinking through this is very important thing or the potential of the business is very important. Also, I’ll say that I said asset-light, sometimes actually asset-heavy, can be great, because asset at that point depends on what the asset is, assets actually can be a moat, right? So some there are some businesses which are asset-heavy, but extremely moat-y because they have those assets nobody else has, it takes money to replicate that. And it’s not easy to replicate. So again, I think thinking about the business in today’s context, and then thinking about it in a 10 year window period is very hard.

Daniel Kline  43:34  it’s also very important to understand the business, I’ll channel our very own Maxx Chatsko, who points out that it’s one thing when you’re talking about say Zoom, a company that has, you know, hundreds of 1000s of customers and billions in revenue, I don’t know the exact number but hundreds of millions, at least in in revenue. And when you’re discussing a pre-revenue, pre-product biotech company, that’s all of a sudden worth more than Ford. Like that happens sometimes. And you have to look at what the risk is involved.

So, if you look at zoom and say, okay, what’s the risk, the risk is that they’re not going to continue to grow, and it’s not going to be worth this much. But it’s still going to be a viable business and there will be value to it. There are sometimes valuations where you look and go, Oh, okay, there’s actually the possibility that everything doesn’t go right here.

We are nearing the end here. And this is actually the last one we are going to take. It’s from register and it says our maybe redtiger not sure. Assuming a stock is so cheap, that it cannot go down any further. And turns out as long as its above zero, it can. Yeah, I’ve never been a fan of somebody who buys shares of a bad company that used to be valuable. I think of it this way.

A pizza has a descending value on day one, it’s worth $18 maybe the next day, it’s worth you know, 14 or 15 a month from now you don’t go back and go like wow, that pizza used to be worth $20 it’s worthless, like it’s rotten. It’s no longer good. That doesn’t mean companies can’t recover. There are a few, Sirius XM in our lifetime is the one that pops to mind. But it doesn’t happen that often bad companies tend to go in one direction. Anirban, you can have the last word here.

Anirban Mahanti  45:16  So you know, actually, this is great. I’ve done this mistake many times thinking it gets, can’t get cheaper. So I think actually, the market as a whole ever has a great signaling mechanism, right. And maybe this is a little bit of an investing sort of lesson or something to think about. If the stock goes down on a particular day, that’s a great signal that something bad happened, right. Most of the time, not all the time, the mark is actually right directionally, about the shellacking that the company got it had a really bad report, the future is not looking as great, therefore the stock went down.

What you can question is, did the stock go down enough? Did it get the direction? Did it get the amount? Right, right. And probably market actually gets the amount wrong all the time. But the direction is right, it gets the wrong amount wrong in the sense that maybe it should have gone down even more, because eventually it does go down more. That’s where the mistake is, or it went down too much. And it didn’t, you know, so that’s what you have to decide for the investor.

The same thing happens on the reverse side where only good report, the stock goes up. But then you can think, Oh, it’s all priced in. Maybe it’s not because again, the market is directionally right. It says, Okay, this is great. I think the future is looking bright, but doesn’t get, it either overshoots and undershoots. Right. So I find that I use the market actually market signaling a lot. And I’ve tuned myself to think about this. So when the market says, Oh, this is bad. I actually said, Okay, I really need to run the ruler really hard on this one, if I am going to buy it, right, so a lot more attention in the details and trying to figure out okay, what did the market get wrong?

Because again, directionality of the map, I actually think that when the stock goes up, that you know directionally, at least you’re in the right path. So going up means even if you get the valuation wrong, you just have to wait a little longer to make the returns. And this is something that people don’t pay attention to that much. But you know, directionally if you’re right and it goes up, then instead of maybe making the returns you expect to make in three, you make it in five, or maybe it’s seven, but you eventually make it, the directionality matters, the direction is down. The down is, as he said, goes to zero.

Daniel Kline  47:33  I think it is important to note, though, that in this market, we are seeing a company’s put out stellar earning reports, I’m talking about Apple a lot, but that’s the most obvious example or Netflix, where their yearly growth is amazing. But their quarter over quarter wasn’t great, because they gained so many subscribers in the previous quarter, when a stock goes down, I will look at the actual report to determine if the news is actually bad, or the spin on the news is bad.

And oftentimes, and I’ve talked about this a lot again, I hate to bag on the media, because I am a lifeline and collecting a check as a journalist since I was like 17. So you know, I have nothing but respect for journalists, but I don’t think they understand nuance. And it’s one thing to say like, yeah, Apple is up double digits in every sector, and it might not be able to repeat that next year. That’s true. But that’s sort of like saying like, Well, you know, the the the Celtics won by 30 points last night, I think they’ll only win by 10 tonight, like, well, they’re still gonna win, like I think and I picked the Celtics who haven’t won a lot recently.

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