Prior to joining Vanguard in 1986, I was a saver. All of my money, modest in amount, was in bank savings and checking accounts.

Naturally, after coming aboard HMS Vanguard, I learned more about financial markets, asset classes, and mutual funds, and I became an investor—both through Vanguard’s 401(k) plan and on my own.

I was lucky to be surrounded by some of the brightest investment minds around. Former Vanguard Chief Investment Officer Gus Sauter had an office right near my cubicle, Vanguard founder John C. Bogle was just down the hall, and legendary Windsor Fund portfolio manager John Neff was on the same floor of the building. Talk about an investment titan trifecta!

During my 25-plus years as an investor, I’ve done a few things right. As I noted, I joined Vanguard’s retirement plan, saved at a healthy rate, constructed a balanced and diversified portfolio, invested in low-cost funds, and stuck to my plan in tempestuous markets. These are “three yards and a cloud of dust” plays right out of our investing playbook.

I have to admit, however, my mettle was tested within my first year at Vanguard—October 1987—when the stock market declined nearly 23% in a single day. I didn’t have much money to lose, but the sheer magnitude of the drop and the immediate comparisons to the crash of 1929 made an indelible impression on me about stock market risk. And the 2008–2009 swoon was even more stomach-churning and frightful for me, given that the stakes were much higher at that point. However, I stayed the course.

(As an aside, it is equally important to keep your head during periods of market ebullience. The extraordinary bull market in the 1990s tempted many to heap their assets in stocks as the market rose to dizzying heights. From April 1994 through August 2000, the S&P 500 Index was up 285%. Investors jumped aboard the chugging stock train and many found their way to the tech stock car only to experience a plunge into the proverbial ravine when the 2000–2002 bear market hit.)

But let’s be clear, I’ve made my share of mistakes along the way. Here are two I made, and one I almost made:

  1. Chasing yield. One of my first fixed income investments was Vanguard GNMA Fund. I was attracted to the high absolute and relative yield and didn’t fully appreciate the principal risk that accompanied the investment. I wasn’t expecting, nor was I accustomed to seeing, the fluctuations in the net asset value of what I naively considered to be a conservative government bond fund. Experience, they say, can be a cruel teacher.

 

Mistake: Greed and ignorance.

Lesson: Don’t chase yield or past performance. Do your homework and have realistic expectations for the reward and risk potential of any investment that you’re considering.

 

  1. “Investing” in single-country funds. Speculating is a more accurate description. Two country-specific stock markets appeared to be beaten down and ripe for a rebound, so I invested a healthy amount. Both markets rebounded, and I was feeling pretty smart until 2008–2009. The financial loss stung, but the silver lining was that I was able to harvest some losses to offset capital gains.

 

Mistake: Hubris.

Lesson: Don’t try to time the market. Recognize that the narrower the market, the greater the risk. Money is made in the markets over the long term; don’t look for a quick strike.

 

  1. Being inattentive to a changing financial situation. Being a long-term, buy-and-hold investor doesn’t mean you don’t have to monitor your portfolio and make adjustments along the way. A colleague (really, it wasn’t me) made a fairly costly miscue with his child’s college fund. He was aggressively invested in stocks and, through sheer inattentiveness, failed to move to a more conservative stance as his child reached college age. He, too, got whacked pretty hard in 2008–2009. Learning from his mistake, I recently moved some of my college-age daughter’s money to a short-term bond fund.

 

Mistake: Inattentiveness.

Lesson: Periodically monitor your portfolio and make changes as circumstances dictate (not as the financial markets dictate).

 

Winning a loser’s game

I’ve learned that getting a few key things right—and minimizing what you do wrong—is the way to investing success.

In his classic investing book, Winning the Loser’s Game, former Vanguard fund trustee Charlie Ellis observed that investing was like weekend golf. Frequently, the winner on the links is the “duffer” who makes the fewest mistakes—the one who stays out of the rough, avoids the water, and steers clear of the traps. The duffer may not be an advanced player, but he knows the pitfalls to avoid. The loser, on the other hand, may be a skilled player but defeats himself by playing aggressively to win—trying to carry a water hazard or going for the green over a maze of bunkers.

We’re all human, and we all make mistakes. But if you set up a solid plan and stick with it, you’re less likely to blunder. And, hopefully, like me you can learn from others’ mistakes too. As such, you’ll be giving yourself a better chance for investment success.