Some of the most important investment lessons for beginners centre on learning how to make the best long-term stock picks while staying away from costly investing mistakes

Investing success comes from making more right decisions than wrong ones over a long period of time.

Early in their investing careers, beginner investors have only a vague idea of the value of building an investment portfolio. These investment lessons provide some perspective on making better investment decisions.

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Investment lessons for beginners #1: Avoid stirring yourself up

I spend a fair number of days every year in meetings with other business owners and CEOs. Though we’re all in different fields, we seem to run up against the same problems and challenges. These meetings help me do a better job of running The Successful Investor Group, but sometimes they also yield investment lessons.

In one recent session, we talked about using a particular strategy to tackle a particular business problem. The strategy made a lot of sense to most of us, but one group member kept challenging it, pointing out unpleasant or undesirable side effects it might cause.

The group moderator stopped and wrote this acronym on the board:

MUSTSY

“Does anybody know what this means?” she asked. A few hands went up, but nobody offered an answer.

I wondered if it had something to do with the word ‘musty’, as in “musty old (that is, unimaginative) thinking”, or, say, a play that suffers from “musty (banal or trite)” characters or plot. I didn’t know what to make of the second ‘S’.

One group member volunteered a guess, and got the first two words right. The moderator wrote “Making Up” on the board. Other guesses followed. When a guess included the right words, the moderator wrote them down.

The meaning began taking shape:

Making

Up

Stuff

To

Then someone volunteered, “Making Stuff Up To Scare Yourself!”

“Close!” she said. “But what if you aren’t trying to scare yourself?”

In fact, the acronym is short for “Making Up Stuff To Stir Yourself.”

Successful business people do this all the time. So do successful investors. We all jump to conclusions and make snap judgments. These judgments may scare us or embolden us, or outrage or enthrall us. It depends on how they fit in with our beliefs and prejudices. But if we let this stuff stir us up enough to take action, it introduces a random element into our decisions. This can pay off on any one decision, or backfire. Making a habit of stirring yourself up is bound to cost you money.

On the other hand, following these investor lessons should pay off for you:

Investment lessons for beginners #2: Look for stocks with hidden or little-noticed assets

These are assets that are easy to overlook, since their full value rarely appears on a company’s financial statements.

These assets include long-time real estate holdings that are worth much more than the balance-sheet value. Under-used brand names are another good example. Another key hidden asset is research spending. Companies write off their research outlays in the year in which they spend the money, but benefits (if any) such as new or better products may only materialize years in the future.

Investment lessons for beginners #3: Use registered savings plans early

Our investment advice is that you should take advantage as early as is practical of all registered savings plans, such as RRSPs and TFSAs. RESPs are particularly attractive, due to the government grants that come with them.

Investment lessons for beginners #4: Have patience with your holdings

Losing patience can cause you to sell your best choices right before a big rise.

All too often, investors buy a promising stock just as it enters a period of price stagnation. Even the best-performing stocks run into these unpredictable phases from time to time. They move mainly sideways in a wide range for months or years before their next big rise begins. (Stock brokers often refer to these stocks as “dead money.”)

If you lack patience, you run a big risk of selling your best choices in the midst of one of these phases, prior to the next big move upward. If you lose patience and sell, you are particularly likely to do so in the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.

Investment lessons for beginners #5: Seek dividends in your investments

If you’re new to investing, one tip we share often is to invest in companies that have been paying a dividend for 5 or more years. Dividends are typically cash payouts that serve as a way for companies to share the wealth they’ve accumulated. These payouts are drawn from earnings and cash flow and paid to the shareholders of the company. Typically these dividends are paid quarterly, although they may be paid annually or even monthly as well. In addition, Canadian citizens who own shares in Canadian stocks that pay dividends will most likely benefit from a special tax break.

What are the most significant investing lessons you learned as a young investor?

Some investing lessons can be hard to learn. What is a big investing mistake you’ve made that you can caution young investors about?