I will never forget my first investing lesson, not because the effects hurt me that much, but because it is a simple mistake that a lot of people make. From that day on I vowed never to make such an avoidable obstacle a problem again.

It was in the early summer of 06, I was working as a HR Summer Student at a well (as in oil wells) service company. I was making decent money, for a student, and I had stockpiled some of it in a savings account. I knew that keeping it in that account was a waste, I could make a much higher return on my own. A lot of my other invested money was in mutual funds which my father managed, they were doing well and would continue to do well. But I knew I wouldn’t get the high returns I was seeking through a mutual fund.

So one day I was talking about stocks and investing with 2 other summer students and one mention how he had just about doubled his money after investing in the company we worked for. The companies stock had recently split, and shares were are $25. So I went home, “thought” about investing in the company and eventually decided to go ahead with it. I “invested” $2000 into the company I was working at and another company I read about in the news, and began to watch the stocks ever so closely. Slowly but surly my $2000 started to dwindle. It would drop then rise and drop some more. After 6 months of watching the numbers get smaller I got out with $1400 remaining. Now this isn’t that big of a loss, but considering I was expecting to double my money, it was heart breaking.

I put the $1400 into mutual funds with my dad again and forgot about them. Until a week or two later when I tried to figure out where I had gone wrong. And then it hit me, I really didn’t know what I had invested in. I didn’t analyze the company’s business plan, I didn’t look at their annual reports and I didn’t look at the economy of the industries that they were in. All I did was throw my money into a wishing well, hoping for the best.

From then on I always researched where my money was going. The cost of not doing the proper due diligence on investments far outweigh the self imposed risk. So please do not make the same mistake I did, do your research, come to your own conclusions. Don’t listen to co-workers who got lucky once, listen to the data who is consistently right.

Please post any lessons you’ve learned from your experiences, so that everybody can learn

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Filed under: Due Diligence, Investments, Portfolio Income