How You Can Learn From My 3 Biggest Investing Mistakes

Markets Motley Fool

Sometimes you learn better by making mistakes, but when investing, that can be costly. You would do well to heed Eleanor Roosevelt's advice: "Learn from the mistakes of others. You can't live long enough to make them all yourself."

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With that in mind, I'd like to share some personal investing mistakes that have postponed my own retirement.

Starting too late

Growing up, I learned it was important to save money, but what I didn't know was how to put my money to work. My wife and I married young, saved like crazy to buy a house, and then spent a lot of money making our house a home. Don't get me wrong, I didn't pass up taking advantage of a 401(k) match, but we didn't do much more than that. If only we had known about the power of compounding, we would have worked harder to save more and invest.

In 2004, at the young age of 37, a friend told me about two brothers who started an investing service called The Motley Fool -- I checked it out and was hooked. After reading articles about the individual investor's edge on Wall Street and other Foolish advice, I realized I had missed out on years of investing time. As a result, I got my kids investing, too.

That was 13 years ago. I can't imagine how much better off I would have been if I had double the amount of time in the market by starting at age 24. It's said that while the best time to plant a tree was 20 years ago, the second best time is now. The same goes for investing.

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Fast forward a few years, and you could say I had become addicted to investing, and that's when my next mistake came in.

Not having an emergency cash fund

Every chance I got, I would take any money left over after paying the bills and use it to buy stock in another company. I had some wins with Chipotle, Garmin, and GameStop, excited that I was making my money work for me. The only problem was, pretty much all of my money was tied up in the market.

In 2008, the market turned due to the financial crisis, and I was starting to worry that my once secure job wasn't so secure anymore. I was in the precarious position that if I lost my job, my family of four wouldn't have any cash to pay the mortgage or other bills (as it turned out, I did lose my job shortly thereafter). I did the only thing I could -- I sold my stocks to raise cash. The graph below shows three of the companies I sold out of -- NVIDIA, Starbucks, and MercadoLibre -- and the incredible returns I missed out on since Mar. 2009.

I missed out on the huge upside from these companies, because I lacked an emergency fund. A recent survey reported that 69% of adults in the U.S. don't even have $1,000 in the bank to cover unexpected expenses, let alone major life events like losing your job or incurring significant medical bills. While experts vary on how much of an emergency fund is necessary, this article will give you some guidance on how to figure out what you need based on your situation.

Fast forward another few years ... I was back to work and back in the stock market as it rallied. I was still selling out of some positions though, and reaping some hard-earned gains. After all, isn't that why we invest? But looking back now, this was the mistake that has probably done the most damage to my early retirement plans.

Selling too often

At the time, it seemed like a good idea to "lock in" my profits and move on to new companies. I was suffering from action bias, which is our built-in human desire to always "do something." Over several years, I sold hundreds of positions in my portfolio, which did considerable damage to my long-term returns.

Had I just held my stocks and only added to my positions over time, I could likely be retired by now. Really, I'm not kidding. Check out some of my sell decisions below and how they could have turned out had I been more like my lazy kids and just let my winners run:

Ticker Company My Realized Gain My Potential Gain Had I Held
AAPL Apple 132% 1,053%
ISRG Intuitive Surgical 402% 1,357%
NFLX Netflix 1,038% 13,437%

While some of my sell decisions did end up being the right move, they come nowhere close to the 100-bagger returns on Netflix or 10-bagger returns on Apple and Intuitive Surgical that I missed out on by selling too early.

Even though I'm not happily enjoying my retirement right this moment, I've been able to achieve solid returns, despite the many missteps. My portfolio is still beating the S&P 500 over the long term, but I recommend you heed the former First Lady's advice, and learn from my mistakes as you invest for your future.

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Brian Withers owns shares of Chipotle Mexican Grill, Intuitive Surgical, MercadoLibre, Netflix, and Starbucks. The Motley Fool owns shares of and recommends Apple, Chipotle Mexican Grill, Intuitive Surgical, MercadoLibre, Netflix, Nvidia, and Starbucks. The Motley Fool owns shares of GameStop and has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and short October 2017 $22 calls on GameStop. The Motley Fool has a disclosure policy.