In my twenties, I made an investment that I learned a ton from. It was the very beginning of the financial crisis. I saw an opportunity, made up my mind, and pulled the trigger. A few months later, the world was in free fall. The value of my investment plummeted, and my startup was struggling to get customers. It felt like nothing was going right for me (or anyone else). I recently reflected on that time with a close friend:
- Experience – I didn’t have experience with the type of investment I was making. In hindsight, I wish I’d connected with someone more seasoned in the space so I could have factored their wisdom into my decision-making. My lack of experience handicapped my decision-making and execution.
- Timing – The impact of timing can’t be underestimated. It’s not something one can usually control, but it can have an outsize impact on returns. In this situation, I was too early.
- Conviction – I didn’t have strong conviction about the investment I was making, so when things began to go differently than I had anticipated, I was ready to sell. I sold way too early for a small profit. Had I held on, my profit would have been huge. If I don’t have a strong conviction about something, I shouldn’t invest in it. Conviction is key to weathering the ups and downs of the journey.
- Horizon – I didn’t have much of an idea how long I planned to hold the investment. That and lack of conviction resulted in a premature sale. I now try to think about how long something might take to reach its full potential and use that as my time horizon.
In the end, this investment turned out fine and I learned a ton from it. I’m glad I did it. Because of it, I gained valuable knowledge that’s been useful over the years.