An Investment Mistake That Taught Me More About Investing Than Any Book Ever Did

‘Gold slippeth away from the man who invests it in businesses or for purposes for which he is not familiar or which are not approved by those skilled in its keeping.’ - George Samuel Clason – ‘The Richest Man in Babylon’ There is this common adage that says knowledge is power. I have however come to realize that it is not knowledge that is power. Instead it is applied knowledge that is power. This therefore is the subject of my discussion in this post. Back in the year 2000 when I first read the book, ‘The Richest Man in Babylon’ by George Samuel Clason, I was so overjoyed that I made it a duty to share the practical knowledge encapsulated therein with all my friends and acquaintances. I felt then that this was a book that provided all the practical answers that could fast track your journey financially from where you are to where you want to be. However this could only happen if the principles are diligently applied. Come year 2007, I retired from paid employment and was paid a handsome gratuity running into millions of naira. Though this money was payment for my effort of almost two decades of work, I soon realized that easy money does not stick around. Think of those who have won lotteries and how have not been able to much save out of their winnings. You see the wealth that comes quickly often goes the same way if not properly handled. The year 2006 to early 2008 was the time when investment in stocks was at its prime. Thinking I had acquired enough knowledge in stock trading I invested heavily in it. In point of fact the bulk of my gratuity went into the stock market. Then came the eventual recession and economic melt-down of the years mid 2008 to 2010 and the bubble busted. I lost my entire gratuity to unrestrained spending and unwise investment in stocks. Rather than diversifying my investment, I only concentrated on stock trading. Why? It was because I wanted quick and immediate profit. It was therefore my greed that brought about my financial ruin. You see the worst thing that can happen to you in stock trading is to initially win big which I did. It made me think I was smart and knowledgeable in stock trading. It was the greed to win more that propelled me to invest more which consequently wiped off my gratuity and my other savings. My experience thereafter is a story for another day. What therefore is the moral in this story? The moral is that you should never invest in any business which you are not familiar! Apart from this, I also learned from this my investment mistake several other lessons out of which I will like to pick out ten which will benefit you my readers today. 1. Your past failure or mistake has no bearing on your future. 2. Be cautious with the advice of financial experts when it comes to the issue of investments. Most of them are not competent. They are only interested in the gain they stand to gain. 3. Success in investments comes from intelligent investment judgments. That is the intelligent choices and decisions you make in your investments. 4. Intelligent judgments/decisions come from experience. Your experience on the other hand comes from bad choices/judgments made in the past and what you have learned from them. 5. There is benefit in the ‘Principle of Accelerated Failure’ (Mark Morgan Ford coined this in his book, ‘The Pledge’). That is, the faster you learn from critical mistakes, the sooner you will acquire the knowledge and wisdom to succeed. Put in another words, never fear to make mistakes or fail. You should seek it out and learn from it. 6. Hard work though necessary does not necessarily bring about prosperity. 7. Money is a means of exchange and wealth is a state of mind. Wealth grows whenever men exert energy in the pursuit of a worthy goal. 8. You invest not for building assets but to generate income for the rest of your life. 9. To become a successful investor you have to seek and learn the secrets. You must learn how to invest. 10. There are investment principles/laws which if applied would generate for you income for the rest of your life. In spite of my mistake in this investment, have I really stopped investing in stocks? My answer is a resounding no! Rather I have made efforts to learn from this mistake. My judgments and decision making in investment have also become better and wiser. This has therefore brought me gains instead of pains. In addition, I also learned something which is priceless. I have learned the benefit in portfolio diversification. This then led to do a little bit of research on the topic and thus far, Tony Robbins seems to have provided the best insight. Portfolio diversification is what Tony Robbins referred to as Asset Allocation. In his video seminar titled, ‘Financial Freedom: 3 Steps to Creating the Wealth You Deserve’ Tony shared some practical financial and investment secrets which I have been putting into good use and have served me well till today. I belief if applied it will benefit you my readers and immensely too. You see, the secret to good investment is proper asset allocation. This I did not do when I collected my gratuity. I only concentrated on stock trading which is only one form of income generating medium. Asset allocation is the single most important investment decision in your life. It is the only thing that can protect you against loss of your investments. Asset allocation means creating three buckets into which your investments would go. So whatever amount of money you intend to invest goes into all three and not one. They are:  Security bucket: In this bucket you have the investment that gives you guaranteed rate of returns. It is the most secured against loss. Therefore your first investment has to go into this bucket. Examples of such investments are: bonds, insurance and of course your home.  Growth bucket: This kind of investment guarantees you greater returns on investment if successful. If you however screw up in your growth investment, you get zero returns. Examples are stocks and real estate. The two main strategies in this bucket of investment are the buy and hold strategy and the trading strategy (which is the strategy of the momentum players).  Dream bucket: These are the investment in your dreams. Examples are: travels, owning properties in choice part of the world, owning a boat, owning choice cars etc. How do you then decide how to fill up your investment buckets? This will depend on your stage in life. The older you are, the more you will need to fill up your security bucket first. As an elderly person (in your 40s, 50s or 6os), you need to fill up your security bucket first since you have less time to make up for your investment mistakes. This practically is how I allocate my investments today and I have been the better for it. However what do we have today when people want to invest? Most people tend to fill their dream buckets first. They want the best cars. They want to live in choice areas. They like to indulge in living big. You see you can only live big or indulge in your dreams when you are financially free and independent. That is when you consistently make money from your investments for the rest of your life and you never have to work again. Next they fill their growth bucket and finally the security bucket. This is wrong. I want to thank Tony for providing me this insight. I want to thank you too for taking your time to read this post. I hope you have benefited from reading it as much as I have enjoyed crafting it.