Now I Know: 5 Investors Share Memorable Early Lessons

It's not always obvious when we first get started, but our early decisions as DIY investors can shape more than just our chances of success – they can help determine the investors we become. No pressure, right? Whether it's the first stock you bought, the sell decision you made in the heat of the moment, or years of discipline finally paying off – each experience lays the groundwork for a lasting lesson.

We invited five of our RBC colleagues, all seasoned self-directed investors, to share how their past experiences shaped their personal ideas about investing in the present. One thing's for sure: they're not the same investors they were when they started. Find out what they had to say below.

Your employer's stock… is still a stock

One product development director accumulated stocks in a large institution he worked for early in his career. “My employer gave me shares and I bought shares. It was the whole deal. For a long time, it was a great experience. I felt like it was a giant, safe, international company," he says. Then the 2008 financial crisis hit. “It wiped me out. It taught me to mindful of the risks of concentration."

Something an old-hand investor told our colleague years before helped him move forward: Treat the company you work for like any other stock in your portfolio, and manage risk accordingly. “This is the company that pays my paycheque – do I really want my investments all tied up with the same company? That's an awful lot of risk," he says. “Now I regularly diversify and balance my portfolio."

Your personal values matter when picking investments

“There are definitely times where I will take a purely quantitative approach on trades, but for the most part, the stocks I hold the longest tend to be ones that align to my own values or enjoyment," says one strategy director. The first stock she ever bought was in a global entertainment company. She recalls that it scored well across several metrics that an article said were important to consider when buying a stock – P/E ratio, dividend growth and free cash flow, to name a few. “It also helped that I have an obsession with the company's films!" she says. “I very much stick to the mantra of buying stocks of companies whose products or services I would use personally."

She says the company rewarded her over the long term. “It taught me that it's possible to take a systematic approach to stock selection, like fundamental analysis, while also applying a personal filter," she says.

The power of diversified funds

When this risk-averse content manager started investing, she put $5,000 into a blue-chip Canadian company. The experience would teach her that there is no such thing as a “safe" stock, and it later prompted her to diversify her portfolio.

“To me, it was a huge amount of money, but it seemed safe," she says. When the company went bankrupt, “I was shell shocked," she recalls. “I sat on the sidelines for a while, worrying about buying individual stocks. I didn't feel like I had the expertise and knowledge at the time to evaluate individual companies."

Our colleague added mutual funds and exchange-traded funds (ETF) to her holdings, which she felt helped spread risk across a pool of companies. “I slept better at night," she says. With a diversified portfolio built to withstand unexpected ups and downs – the recent bull market also helped – she found renewed confidence to pick individual stocks that fit her risk level. Thanks to a well-rounded strategy and sharper research skills, she says, "I'm not bailing out, I'm not panicking. I'm happy with the choices I've made now that I know a little more."

Plan for when to sell

“My downfall? I didn't have an exit plan," says an editor. “Lesson learned."

The first stock this editor purchased when she became a DIY investor almost six years ago was a Canadian e-commerce company that she noticed some of her friends were using. After some light research, she thought the company had potential. Well, it didn't do much for a while. Then COVID hit.

“These kinds of companies skyrocketed. I was feeling very good watching the rise, thinking what a great pick it was to begin with," she says. When pandemic restrictions eased, however, the stock fell as quickly as it rose. "Now, I try to be better at planning things out before I make a trade. If it's a short-term investment, I think of a price I will get out at if it hits that level." Crafting a sell strategy is one way investors can avoid making a poor sell decision.

What goes down doesn't always go back up

“Just because a company has a large market cap or a good history, it doesn't mean that it will always stay this way," says one manager. Here's how he learned that lesson.

He was studying finance in 2009, just after the Great Recession crashed stock markets, when his parents opened a modest account and asked him pick their stocks. “I thought $1,000 is too little to do anything other than try to make some money in a short period of time," he recalls. He bought into a major American industrial company and sold it within a week, netting a 10-per-cent profit.

Though his first trade worked out, our colleague says his younger self made a few assumptions he'd think twice about these days. “The stock looked cheap," he says, having dropped about 75 per cent from its pre-recession highs. Keeping an eye on it, he reasoned that a large and established company such as the one he'd invested in would surely recover – a case of excessive optimism. The company currently trades below its 2009 price. "Now, I always do my own research," he says. “There are other factors to look at when evaluating a stock."