A kick in the nuts. The mistakes I made to lead me to make a 50% loss on a trade

I pride myself on being a long-term, patient investor. I have in place a strategy which involves buying and holding higher-yielding quality companies so that I can reinvest income and benefit from compounding. I believe over the long term this will produce significant wealth and boost the value of my ISA and SIPP and allow me to quit the 9-5 rat race earlier than most people my age.

That simple aim took a big hit when I lost 50% in just 24 hours on a short term trade recently. The experience has reinforced some lessons for me and hopefully is useful to other investors, which is why I’m sharing it with you.

What did I do?

I got excited by the sharp share price increase which biotech company ValiRx had been experiencing. Without doing enough research I jumped in and bought the shares. Within hours I was down 30% and by the time I sold, just a day after buying, I had cost over £1,000 and 50% of the value of my investment.

What are the lessons from this big mistake?

Lesson #1

Lack of research – I saw the ValiRx share price was moving dramatically and I leapt in without researching – which is fairly unusual for me, although not completely without precedent. A bit of a gambler lurks within me but usually I have better control of that urge. Not this time. The lesson is to take a deep breath before pulling the trigger. Like with any purchase it’s sometimes better to wait a few days and consider your options before actually diving in. Really – as I should know – you should do research before buying a share. Especially so with one as volatile as ValiRx.

Lesson #2

Didn’t control my emotions – I think I jumped right in because I didn’t really stop and think. I’ve known about ValiRx for a long time so maybe some kind of anchoring and psychology was at play here. I’ve wanted to own the share for a long time and think it could be a hidden gem. But buying when the share price was widely undulating was in hindsight a bad idea. I should have realised that beforehand as well. If I had conviction in the share I should just have bought it when it was low rather than getting caught up in hype and buying after it had risen sharply.

Lesson #3

Deviated from my strategy and what I do best – for me this is probably the biggest lesson. I simply allowed myself to pulled off the track I’ve set for myself and now I’ve taken three steps back. For the foreseeable future I’ll carry on with my strategy as laid out before.

Sometimes it takes painful lessons like this as an investor to remember that the market punishes the excitable, the arrogant and the sloppy. I was guilty of the first and latter on this investment/trade and the pain I’m feeling means I won’t forget it quickly. It’s a minor blip though and I’m fully intending to come back stronger, more experienced and wiser as a result of this mistake.

If you like this please read my latest article on CMC Markets and whether it makes for a good income investment.

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