Critical mistakes I made which ate into my returns- Please do not commit these mistakes

 Hi readers,

Today I am going to share on what are the big mistakes which I have made through my stock investing journey thus far and how you can avoid making these mistakes. These mistakes may sound stupid but they have really eroded into my returns. 

1. Investing into unproven businesses 

2020 was the year of SPACs ( special purpose acquisition company) whereby these shell companies take a private company public without actually going through the normal traditional IPO process. In the prospectus, we often see crazy revenue projections for many years to come. Many of us retail investors, believing the hype, jump into the SPAC without waiting for a few quarters of earnings to verify if they are able to meet these revenue projections. Coupled with many youtubers, twitter accounts hyping up the stocks, many retail investors got burnt badly by jumping into the stock.

I was one of the retail investors who jumped into some of the SPACs, without waiting for the earnings and got burnt. Definitely, moving forward, depending on your risk appetite, please wait for a few quarters of earnings and doing your own due diligence before purchasing a stock. Alternatively please size your position accordingly, make it a small position. 

2. Diversifying too much

Given the large amount of time we have due to COVID, many of us have plenty of time to comb through the internet for stocks which can give great potential returns. Because of this, we purchase many speculative positions, but over time, we build up a portfolio with many stocks which we have difficulty keeping track of with their updates and quarterly financial reports. 

I am also guilty of this, because I have built up my portfolio from 15 stocks to over 40 over stocks, which I have difficulty keeping track of. Thankfully the top 10+ holdings are over 75% of my portfolio, so its easier to keep track. Moving forward, I will trim and get rid of holdings that have not been performing in terms of revenue. 

3. Stock valuations MATTER

Remember Snowflake (Ticker: SNOW) anyone? It is a cloud computing-based data warehousing company and projected to grow revenues at 100+% . It IPOed at close to 75x revenues and went to a high of $400+ last year. However, due to its hefty valuations, it remained flat for close to 6 months now after the huge drop in the beginning of the year. Some of these companies with crazy high valuations either undergo a price correction due to the high valuations or the price remains stagnant in price while waiting for the revenues to match up to the valuations. 

However, there are some exceptions such as TSLA and SHOP, which have extremely high valuations but they do seem to be going on an unstoppable run these few years. Whether they will undergo a correction, time will tell. Look at the chart below for SHOP, simply stunning.

Hope the above information is useful for the readers, if you find them useful and if you have not yet signed up with Moomoo or Tiger Broker, please use my referral link to sign up for them. These promotions given by these brokers are for a limited time only and I would appreciate the support given to me. 

1. MOOMOO

https://j.moomoo.com/005XGg

2. TIGER BROKER

https://www.tigersecurities.com/activity/forapp/invitflow-intl/signup.html?template=invite202011&invite=H5XD7L