Horrible Mistake I Made by Emotional Investing
1. Buying the HYPE
I was emotional and bought the hype. Back then, in 2017, blockchain was the talk of the town. So obviously I thought to myself, why not a blockchain company? I actually looked at every blockchain company listed on the stock exchange as well as the venture exchange. I decided to buy a stock called BTL Group, which I saw had a really good performance, and the stock still looked like it was in the middle of a huge rally.
When I looked at it, I could feel this sense of FOMO and thought that I should invest right now. So, literally the next day, I put my $ 5,000 savings into this stock for $4 per share.
Two months after making the initial investment, I thought I was a genius because the stock went up to $7 a share, and my $5,000 turned into $9,000. So I made money on this stock and then sold it for $7 a share. In a perfect world, it should have just stopped there. Unfortunately, the stock rose to $18 a share shortly after the sale.
And I kept kicking myself because I thought if I didn’t sell, I would have over $20,000. That’s when I got emotional, without thinking the next day, I spent $9,000 I liquidated from the initial investment and put it all into that stock, and bought it back at $18 per share.
But what I didn’t know was that it was the highest ever at $18 and the stock tanked. At one point I was down over 50% of my initial investment.
That’s when I decided not to invest in this investment again and going through the emotional stress, it wasn’t worth it. Overall, I made a net loss of about $ 3,000 on this stock, but fortunately, it was actually a recoverable amount.
A year later, I checked the stock price again. I discovered that the company executives had liquidated their shares and the company was in fact listed on the stock exchange. Basically, the company has dissolved. It wasn’t until a year later that I realized that the shares I bought weren’t even for a profitable company. The whole business is literally just a business plan and they have no product and no revenue.
I learned two important lessons from this experience:
#1 Emerging tech = speculative
New technologies are mostly speculative investments. In other words, they are risky. Think of the thousands of e-commerce companies that were founded in the 1990s to provide a perspective on how Amazon survived the dot-com bubble.
People often say, “What if you invested in Amazon in 1998?” These things are usually very easy to say in retrospect. But in 1998, Amazon was a fairly speculative investment, and it was very difficult to pick its stock from the ocean of e-commerce startups at the time.
#2 Past Performance Does Not Predict Future Result
A more important lesson is that performance is not a measure of future outcomes. Just because you’ve done well in the past on a company’s stock chart doesn’t mean it will continue to perform well in the future. Unless we know, this company has intrinsic value.