Investing 101: The 1 Dumb Mistake to Avoid

• Posted by Tech Insidr
• on October 26th, 2011

Investing is a continual learning process for me and I approach it every day with zeal and passion.

Just like anything, though, you can’t achieve good results unless you are consistently working hard towards your goals.

• Could Arnold Schwarzenegger achieve his amazing physique without putting in 2+ hours a day at the gym?
• Could George Soros create such an astounding amount of wealth if he sat on his couch and watched CNBC all day?

The answer is pretty simple.  No.

Investing isn’t any different.. you absolutely need to put in the hard work if you want to achieve the results.  How can you possibly develop as an investor if you aren’t willing to put in the work?

The markets are capable of humbling even the brightest investors out there.  So I think understanding your weaknesses and strengthening those areas is what separates the average investor from a truly great investment manager.

I am extremely self-conscious of my mistakes and I tend to beat myself up when I make seemingly stupid mistakes.  On the other hand, I always make a concerted effort to applaud my successes and achievements as well.

My ultimate goal is to be the best technology analyst out there within the investment community. It might seem like a lofty goal, but setting high goals has never failed me in the past in any pursuit, whether it’s a personal or professional goal.

I work hard to achieve my goals and I have definitely made some sacrifices along the way.  My 20-something friends think I am strange for studying the markets 5-6 hours a day, but I can truly say it’s one of my biggest passions in life.

As I’ve studied the markets intensely over the past several years, I have come across a variety of mistakes that plague most investors.  Some investors rely too much on imaginary patterns in charts… or listening too much to the investing ideas of so called “experts”.

However, the single, most common and dumbest mistake that most investors make is not studying the financial statements.

It always amazes me how some investors will blindly buy shares in a company without even looking over the financial statements.

If you don’t even understand the raw numbers, income statement, cash flow, or balance sheet behind a company.. how can you possibly feel confident in your investment thesis?  

 

As a hard-core tech analyst, I find myself constantly studying 10-Q and 10-K filings for a variety of different technology companies.  You would be surprised how many times that hard work pays off down the road.

An interesting footnote, a strange backlog in inventory, a questionable spike accounts receivable? A smart analyst is willing to put in the time to find these valuable nuggets of information.

Key takeaway:  If you’re not reading every 10-q and 10-K already, you need to head over to the SEC Edgar site right now.

Print them off, read them in the morning, read them on the subway.  Just find a way – I promise you will be thanking me later.

Sometimes the things we hate doing are the things we need the most.

Do I love reading through a variety of SEC documents each day?

No, but I know that doing the research, grinding through reports, and getting familiar with the numbers always helps.

Just the other week, a prominent hedge fund manager got into a discussion with me about $OCZ and $FIO.  He has a well-known long position in $OCZ, met with management several times, but he still didn’t know their gross margin for the recent quarter.

In fact, his gross margin numbers were off by 5% and I had to correct him.

Don’t be that guy – always do your homework and read every SEC filing.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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