by Brian DeChesare Comments (8)

My Top Investing Mistakes of the Past 10 Years

Top Investing Mistakes
If someone works in a corporate finance-related role, you might think that they could manage their personal finances fairly well.

But nothing could be further from the truth.

Just ask bankers who get fired in their 40s and have no substantial savings because they didn’t invest properly, or because they spent too much on a lavish lifestyle.

Personal finance is different from corporate finance, and being good at one does not necessarily imply skill in the other.

But since few people discuss money openly – especially their mistakes – it’s easy to think that “everyone else” is a financial genius or knows something you don’t.

I aim to do the opposite and share the details of my personal decisions, including how I let emotion and paranoia get in the way of logic and common sense.

Hopefully, you’ll learn something, or you’ll at least feel more confident knowing that everyone makes major mistakes:

What’s the Point of Investing?

The average person would probably say, “Save for retirement” or “Save to buy a house.”

Those are possible answers, but for me, it comes down to survival and optionality.

Survival is key because nothing else matters if I lose all my money.

Optionality matters because a high investment balance lets people make decisions without financial pressure.

For example, if you have an investment balance several times your annual income, and dividends and interest from it cover a portion of your living expenses, you don’t have to stay in a crappy job just for the money.

I don’t have a “crappy job,” but I also don’t want to work 12 hours per day for the next 30 years – so I’ll be relying more on investment income and capital gains as I get older.

Having income from these sources gives me options if I want to simplify this business, reduce my hours, or hire someone else to do my current job.

A Brief Personal History: Paranoia and Indecision

When I started this site in 2007, I had over $100K in student loans and very little saved up.

Most people at Ivy League universities, Stanford, MIT, etc., have wealthy parents, but my family was lower-middle class, and financial aid was far less generous ~20 years ago.

For the first few years of this business, I focused on the survival part of my investing goals.

I repaid all my loans in 2010 for psychological reasons rather than logical ones, I started saving money each month, and I put nothing into stocks, bonds, real estate, or other assets.

There were solid reasons for that: I thought we might die after losing a major partnership, there were constant website crashes and technical issues, and online businesses tend to have very shallow “moats.”

I didn’t want to be in a position where I had all my money in stocks, the entire market crashed by 80%, and my business collapsed at the same time.

Also, revenue was growing by 30%, 50%, or even 100% per year in that 2008 – 2014 period without any outside funding.

So, it seemed silly to divert my attention from business growth to the stock market.

Starting in 2015, though, I realized that growth was slowing down.

By that point, I had a significant cash balance saved up, so I started dabbling in peer-to-peer lending, angel investing, real-estate crowdfunding, and other “alternative investments,” mostly because I thought the public markets were overpriced.

But I gradually realized I was wrong: yes, the S&P 500 was overpriced, but it kept rising despite that. Also, there were plenty of other markets (non-U.S. international, emerging markets, small-cap value, etc.) with more reasonable valuations.

So, I started investing in the public markets using a combination of automated accounts and index funds.

Like everyone else who started in the middle of the decade, I am up a decent amount.

I missed out on some of the best years from 2009 to 2014, but my revenue and profits grew 10x over that time, which gave me far more to invest by the end.

You can see my current allocation here. In short, it’s ~27% Equities and ~26% Cash & Savings (and set to fall), with the rest split between Fixed Income, Gold, Real Estate, Crypto, and a few other categories.

So… What Were These “Mistakes”?

Currently, I’m in good shape for my age group, but it took a lot of foolish mistakes to get there.

For each mistake, I’ll describe my incorrect thought process and how it impacted my net worth:

Top Investing Mistake #1: Staying Out of the Markets Because I Incorrectly “Called the Top” – Repeatedly

Back in 2015, I was sure we had reached the top. The S&P 500 was down for the year, there was a transportation recession, and plenty of economic data showed a slowdown.

But then the economy turned around, and the S&P performed decently in 2016 and very well in 2017.

I also thought things were too frothy in 2013… and I thought there would be a double-dip recession in 2011… and, well, you get the idea.

It is almost impossible to call the “top” or “bottom” of any market, and it’s a terrible reason to avoid investing altogether.

I could point out dozens of logical flaws with my thinking, but here are the top three:

  1. OK, let’s assume that the S&P 500 is very expensive by historical standards. Well… just find cheaper markets and put more money into those while underweighting the main index in the U.S. There’s no rule that you need to put 100% into one specific index.
  2. I didn’t need to put in “everything” at once – I could have contributed small amounts each month to dollar-cost average and reduce risk in the case of an imminent crash.
  3. Sitting on cash for multi-year periods is not viable because a system based on fiat currency will always have inflation. It might be low over 1-2 years, but it’s noticeable once you reach the 5-year mark.

Net Worth Impact: If I had started investing at the start of 2013 rather than waiting several years, my net worth would be ~50% higher today. Ouch.

Top Investing Mistake #2: Failing to “Call the Top” of My Own Business – Repeatedly

In an ironic twist, I kept “calling the top” of the financial markets, as I failed to realize that my own business had reached its limits.

After creating the initial versions of the BIWS courses in 2009 – 2011, I kept revising them and greatly expanded the content.

I hired more team members, I paid a small fortune for transcripts and web development, and I put a huge amount of time into everything.

Sales kept growing, so I thought, “I must be doing something right!”

But I conflated causation with correlation: my sales grew quickly in the early years not because I kept creating content, but because the market was less saturated, and because price increases made a much bigger difference.

Yes, product quality matters to some extent, but once you get into 200-page guides, 100 hours of video, and spreadsheets with thousands of rows, no one can tell the difference.

I spent far too much time and money on these efforts, especially on some of the niche courses that never sold enough to justify the time and effort required to create them.

I should have taken a simpler approach: even if a course is “old,” it’s probably fine if sales and the refund rate are stable.

And yes, updates are occasionally required, but I should have reserved my mental energy for fixing major problems.

Net Worth Impact: Adding up everything I spent over several years and assuming a foregone 10% annualized return, I’d estimate a 15% impact on my net worth.

Top Investing Mistake #3: Dabbling Around in “Alternative Investments” in the Private Markets

In 2014, I started to think that the private markets might be better than the public ones.

I’ll let the numbers speak for themselves here:

Peer-to-Peer Lending
The first one is a peer-to-peer lending account (Lending Club) over 3-4 years, and the second one is Peer Street for real estate lending over 2 years.

You could say, “Well, at least it was better than doing nothing and leaving the money in cash, or investing in low or negative-yielding bonds.”

That’s true – but it was still worse than using a traditional portfolio.

I think there’s room for alternative investments, but only if:

  1. You already have a traditional portfolio set up with fixed allocation percentages and monthly contributions.
  2. You keep the alternatives to a small percentage of the total, such as ~5% or less.

Net Worth Impact: This one is tough to measure, but I’ve probably lost 5-10% total from putting some amount into alternative investments rather than traditional ones.

Top Investing Mistake #4: Not Buying a House or Condo in the U.S. in 2013

After living in South Korea, Australia, New York, and other places, I eventually ended up in Seattle in 2013, along with a few friends who were launching a startup there.

Their startup failed and everyone left, but I stayed, made it my “home base,” and continued to live in other countries and return home a few times each year.

I kept saying, “I could easily buy a house or condo here, but I’m probably not going to stay long-term, so it doesn’t make sense; I’ll just rent my small/cheap place and leave next year.”

And each year, housing prices kept rising as Amazon and Microsoft expanded.

I do not believe that it’s “always better to buy than rent” – you need to run the numbers, look at the market and demographic trends, estimate how long you’ll stay there, and so on.

Just ask anyone who bought into the crashing luxury-condo market in New York.

But in this case, it was a silly decision because I wasn’t doing much else with the money.

And since I was there less than 50% of the time, I could have bought the unit and put it on Airbnb while I was away.

Net Worth Impact: I’ll estimate a ~5% impact here.

Top Investing Mistake #5: Failing to Double Down on Bitcoin in 2014

When Bitcoin had a big runup at the end of 2013, I bought in at $1,000 and held it even as the price fell to $200 – $300.

At the end of 2017, I sold most of it for $15,000 – $20,000 per BTC and earned almost 20x.

I then put some of the proceeds into altcoins and lost around 70%… but recouped some as a few of those prices recovered.

Putting your entire net worth into any single asset is a stupid idea, but I do kick myself for not going “all in” when prices fell and I still had faith in crypto.

A more sensible strategy would have been the following:

  1. Aim for a 5-10% total asset allocation to crypto on top of an existing, traditional portfolio.
  2. Each month, allocate $XX to Bitcoin, as long as it was below a certain price, such as $10K or $20K, and as long as my total allocation percentage stayed below my target.
  3. Once it reached $10K or $20K, sell 30% or 50% to take my gains.

With Bitcoin now at higher prices, I haven’t been putting anything in – but I may start buying each quarter.

Net Worth Impact: I’m not even going to estimate this one, or I’d get very, very depressed.

Top Investing Mistake #6: Not Developing Offline Income Sources

Ever since The 4-Hour Workweek came out, people have been fantasizing about building their own online businesses to “live the dream.”

But online businesses rarely work out over the long term, and ones that last over a decade – like this site – are few and far between.

One big disadvantage is that most online businesses have no economic “moat.”

For example, if you sell physical or digital products via a marketplace or e-commerce site, and you depend on traffic from search engines and paid advertising:

  • Competitors could come along, outspend you, and steal all your traffic.
  • Google or Facebook could change their algorithms or ban your account for literally any reason – or no reason at all.
  • The market or customer preferences might change, making it very difficult to earn back your massive upfront investment on content and link-building.

Some online businesses with network effects or strong personal brands and engaged email lists are more defensible, but even they tend to have shallow moats.

By contrast, if you own an offline physical asset in a great location, Facebook cannot “ban it” because they don’t like your political views.

And competitors can’t just “steal” your foot traffic unless they somehow raise enough capital to buy a very similar building that happens to be right next to yours.

Online businesses are great for:

  1. Getting started quickly without needing to raise much capital;
  2. Quick cash infusions from product launches and experimental ad campaigns; and
  3. Side hustles while you’re working on something else.

But unless you do exceptionally well over a long period, you don’t want to put all your eggs in the online basket.

I should have started to diversify, probably with multifamily rental properties, as soon as I sensed lower growth rates and a less-favorable online market.

Net Worth Impact: This one is less of a “net worth” issue and more of a “stability” issue, so I can’t assign a percentage to it.

So, What Do All These Mistakes Mean?

If you sum up the percentages from all my mistakes above, they made a 75-80% impact on my net worth (excluding Bitcoin).

That might be high or low, but it’s safe to say that my net worth would be between 50% and 100% higher if I had avoided these mistakes.

That seems like a big number, but I’m not sure it is.

Even if I had 50% or 100% more in investable assets, I’d still be working on this business each day for the foreseeable future.

It’s not as if I would now be on a private yacht somewhere if I had avoided mistakes X, Y, and Z.

But I would have a higher margin of safety, and I would feel more comfortable taking big risks, such as quitting everything to become an actor or musician (hypothetically).

Here’s the real takeaway for you: mistakes, just like interest, compound over time.

If you start investing too late and miss a big market rally, or you lose money in one risky deal, it’s OK as long as you survive, learn, and adapt.

But if you keep doing it, each mistake will compound and add to your balance of regrets as you look back.

Oh, and you’ll still be kicking yourself for not buying Bitcoin earlier.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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  1. Tesla for me!

    I bought a bunch of TSLA Jan 2021 690 calls… I sold them for a 6.5x profit!!!

    If I had held to today it would have been a 65x profit…

    I also had an opportunity to purchase some similar dated 400 calls a few months back for a buck each :s.. Probably cost me half a million dollars.

    Care to speculate on what happens to the stock price come January earnings call?

    1. I normally do not buy/sell individual company stocks, but I’m seriously considering shorting Tesla or at least buying Put options. I’m not as skeptical as some people, but it seems ridiculously overvalued at its current levels:

      On the other hand, it’s the #1 most shorted company in the world maybe (?), so that could be a reason to stay away…

      1. Thanks for following up Brian.

        Tesla was in a similar situation circa March 2013, and short sellers got trampled on their way to the exits (although the short interest as a percent of available float was higher then, and the expectations were lower)

        Regarding valuation, I see lots of people pointing to *relative value* – i.e. Ford delivers more cars and is worth less – and ignoring *absolute value* – present value of future cash flows.

        What do you think the odds are of Tesla delivering enough cash flows in the future to justify a $100bb market cap in the present?

        Either way I think it’s worth a 2 dollar bet.

        1. I haven’t followed Tesla closely enough to have an informed opinion. However, I would say that the odds are less than 50% that Tesla can produce enough future cash flows to justify a $100 billion market cap because they have similar problems to Uber: core business is unprofitable/marginally profitable (maybe?), the company is highly dependent on subsidies, and growth rates are slowing down, at least in developed markets. China is also cutting EV subsidies now, and the virus situation will make things even worse.

          More broadly, I don’t really think EVs are the solution to “climate change” (if you want to make that type of argument). They may be a contributing factor, but very small next to properly executed nuclear power and carbon recapture.

          1. I hope you didn’t short it!

          2. I would never do a naked short, but I thought about buying put options. I decided against it when I looked at the historical short interest levels and institutional ownership. Still think it’s insanely overvalued, but it’s the type of company that you can’t analyze rationally – it’s like trying to argue with someone about religion or politics. I would not be surprised if the stock price went to $2,000, and I also wouldn’t be surprised if it fell to $100.

  2. More “hindsight is 20/20” than mistakes…

    1. I’d say it’s more than that because “hindsight is 20/20” only applies to individual decisions that look wrong after the fact, such as picking a job offer at the wrong company. But if you do something repeatedly, despite signs indicating that it’s wrong, that’s a mistake.

      The biggest problem here was waiting too long to start a traditional portfolio. That’s almost universally a mistake because the value of all fiat currencies always decreases over time… it’s like gravity. Even if I had been super paranoid and put everything in Gold, that still would have been better than holding cash.

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