3 Things I Wish I Knew Before Investing in Stocks: Insights from an Experienced Investor

As an investor, I am constantly learning. It is therefore not surprising that I would do many things differently today than when I started my investing career. I would change the following three points in particular.

Dividend good, all good

After experimenting with stocks for the first time, I placed a high focus on dividends when investing in individual stocks. According to the motto “dividend good, everything is good”, I preferred to buy shares in companies with a long history of dividends and the highest possible dividend yield. I envisioned how much monthly dividends I would like to receive from companies over the next few years AT&T, Freenet, IBM and Shell would receive.

Today I no longer have any of the four shares in my portfolio. Because now I pay particular attention to the development and future prospects of the companies. These seem to me not to be good at these companies for different reasons.

Of course, I still like dividend payments. But today I know that the total return (price gains + dividends) is crucial. I used to like to neglect the price development, pointing out that the dividend is constantly increasing and I just hold the shares. That doesn’t happen to me anymore today.

Write down reasons for buying and track performance

I can’t exactly quantify the “damage” of my excessive dividend focus. Because at that time I didn’t track my exact performance. Today I track all purchases, sales and dividends in the Portfolio Performance program. This allows me to see exactly how my stocks are doing and compare myself to a benchmark (I use the S&P 500). If I don’t beat the benchmark in the long term, I might just invest in that benchmark via an ETF.

What I now find even more important than tracking and comparing performance is writing down my reasons for buying and selling stocks. While I used to buy shares on instinct, I now force myself to write down in detail in an Excel file why I want to buy this share today.

So I justify the purchase in the situation to myself and hopefully avoid rush jobs. Furthermore, I can look back later and easily check whether my purchase thesis is still intact. This is how I avoid hasty sales – especially in times of falling share prices.

let winners go

Also, my notes help me avoid selling stocks that have performed very well. If my buying thesis is intact, I no longer even think about selling shares just because they are trading in positive territory.

This used to be different. For example, I sold my shares in Netflix and Nestlé in 2016 because prices had risen. Although I realized a nice profit, I missed the strong price increases since then.

Today I am convinced that companies that have developed well so far have a good chance of also developing well in the future. On the other hand, a genuine turnaround rarely succeeds. Accordingly, I like to invest in “winning companies” and hold their shares, even if I’m 100% or more in the black. Because after the first 100%, many more price doublings can follow.

Hendrik Vanheiden owns shares in Netflix. Aktienwelt360 recommends stocks from Netflix.