A while ago, I bought a single stock as part of my investment portfolio and I thought, hey this is a great stock and totally underrated. Yeah it had a bad reputation at the time and quite some debt connected to it but the company was quite old and in my eyes reliable. They merged with an American company. What could go wrong? The price was already down from the all time high of more than 100 EUR by so much. Yeah, at the time, the price was about 67 EUR and I am of course talking about the German company Bayer.
So what did I do? I bought it of course. One month later, the company went down to below 60 EUR while the rest of the market was doing quite well. The bad invest destroyed my early 2019 investments, at least looking at stock appreciation.
I could now say, wow that was stupid. I should never make such mistakes. And of course, never buy single stocks but only ETF. Single stocks are too risky. Also, how dare you write a blog about personal finance if you try to stock pick and completely fail doing it.
Truth is, buying that single stock now when I am in my 30s is better than learning about bad choices when I am over 50 or 60 years old and maybe want to retire.
Truth is also that we don’t know yet how this investment turns out. It might very well be that the stock bounces back. However, it could also be true that the company will cease to exist due to the bad merger. At the moment, Bayer is worth less than Monsanto and Bayer together before the merger.
What is important is that making mistakes is not stupid at all but it is extremely important. And the earlier one makes mistakes, the more time one has to learn from them. At the moment buying this stock looks like a mistake. But only in some years I can really say if it was or wasn’t a huge mistake or if I just missed the bottom by some EUR.
Also, salaries usually go up during one’s lifetime. I make now far more than double of my first income and looking back at my teenager years even more than back then. This trend will most likely not stop. You can expect to earn money from your day to day job in your 40s than in your 30s and more in your 50s than in your 40s. That also means that most investments that I still have to do are yet to come.
Another argument against that is of course the lost time for the investment. A good investment in your 20s can create wealth beyond imagination. Just think of Amazon. Some shares in the early 2000s would have made anybody quite rich by now. But again, hindsight is 20/20, meaning that it is always easier to evaluate choices made in the past than the choices that have to be made today. And let us not forget that even famous investors like Warren Buffett did not see the success of Amazon coming or at least did not invest in it. That is why one should not be too hard to oneself when missing opportunities that in hindsight look like obvious mistakes.
So what can be learned?
(1) Investing in troubled companies is risky.
(2) Do not be surprised if a turn-around doesn’t work out immediately or not at all. There is usually a good reason when stock prices drop to the ground, even if the company is 100 years old.
(3) A boring stock like Coca Cola might be worth to be bought from time to time even if the P/E is above 30 and the return is rather low compared with other rather good looking opportunities.
(4) Invest in ETF as well as in single stocks. It decreases the movements of the overall stock portfolio.
(5) Consider invested money as gone and wait for nice cashflow in the future.
(6) Don’t worry.
To be honest, at the moment I am still convinced that this stock will go up again and I am also looking forward to the dividend that should be quite nice. But all the traffic lights are on red for this investment right now.
So we will see what I can learn in the long run from this investment. Overall, I think it is good to know that becoming financially free is a long path and not something you can learn in 5 minutes. For me investing in single stocks as well as ETF is important to my personal way to financial freedom. But if you do not like it, there is no shame in simply buying ETFs instead. Just make sure that you get a good one and not ETFs that are called ETFs while in fact they are some weird financial product that don’t deserve the name at all.
Investing money in the stock market is a bit like playing a game. You have to understand different strategies and learn which one fits for you. That is why everybody has to make their own mistakes in my opinion. That is also why there is no one shoe fits them all solution. That is why it is important to become a financial unicorn and not just use some random technique that one found somewhere on the internet.
Understanding the core of these financial topics is the only technique that can lead you to financial freedom and full control of your own finances.