The following is a guest post from Sam Broom of The Nude Investor. He talks about the first investment he ever made, and how it ended in disaster. He hopes his story will help you avoid losing money from hot stock tips and poor, speculative positions.
Hot stock tips – we’ve all been there. Your buddy’s been loading up on the “next big thing” and has been urging you to get on board. You know the the kind – “This stock is about to explode”, “It’s almost a guaranteed winner” and “she’s a sure thing, bro”.
I’ll almost guarantee that anyone with any investing experience has heard familiar phrases from friends or family at some stage. Whether it’s been a hot stock tip, real estate investing advice or your buddy regurgitating some washed up tip from a “gold guru” he’s been following – they all have the same message: get in now before the rocket launches into the metaphorical investment stratosphere.
I know this sounds like an oxymoron, but hot stock tips are the bane of any beginner investor – I would know because I lost $5,000, over 80% of my original investment, following a “hot stock tip” when I first started investing in the stock market.
Before I get to the juicy bank destroying details, I feel it’s important that I provide some background information to my story.
I came from a solidly lower-middle class family with parents who had always worked exceptionally hard, but had never themselves been overly fussed with material things. They instilled in me their belief in a solid work ethic – I’ll never forget my dad’s mantra: “If somethings worth doing, it’s worth doing properly”.
A combination of good genes and that instilled work ethic meant I achieved highly at school and ended up gaining acceptance to a reasonably exclusive college. The majority of my fellow students came from wealthy private high schools and it was here that my eyes were opened to the fact that contrary to popular belief, those that worked the hardest weren’t always the best rewarded (in a financial sense at least).
All my friends’ parents were driving around in fancy cars and taking extravagant overseas holidays, yet it seemed like all they did was wine and dine and manage their investments. Meanwhile my parents were slaving away at the same “nine to five” they’d been at for the past 35 years, scraping together enough to renovate that dingy bathroom or to save for their first overseas trip at the ripe old age of 55. I could see that to get ahead, unless you were one of the lucky ones with a big ol’ trust fund, you had to not only save, but put your money to work earning a return that would compound over time.