Dear Reader,The Capital Club.In this age of Trump, banks behaving badly, falling house prices and booming tech stocks, never before have we needed calm, sound, sensible investing advice.I've been actively investing in the stock market for 30 years. I've been through the ups, and the inevitable downs. It's rarely different this time.The ups are fun. August was fun for me, when many of my tech stock holdings ran hard and high. Stating the obvious, the downs are just down. This week is down. I've probably been through a couple more downs than most Australian investors, having lived through a proper dot com bust in the UK, where we laid off 75 per cent of our staff over the course of 12 very painful months.I've invested through the GFC, by far the scariest period of my investing career, and come out the other side.Since the GFC, apart from a few inevitable 10 per cent stock market corrections along the way, it's been largely plain sailing.So much so that a typical 28 year old high flying investment banker hasn't experienced a "proper" stock market crash in their working life. They won't know what hit them!In my experience, most investors make three critical errors when it comes to the stock market.1) They want to get rich quickly.Courtesy of the power of compounding returns, stock market wealth is created over time.You can get lucky by buying a company just as it's about to take off -- witness the company previously known as the hottest stock in the land, Afterpay Touch (ASX:APT) -- but most of the time it takes many years to accumulate a large portfolio. Two cent mining punts might sound like they could easily double, but almost always such stocks end up losing 80 per cent or more in value.Warren Buffett has made 99 per cent of his wealth after the age of 50. Not by trying to get rich quickly, but by compounding an already large sum of money into something truly breathtaking. 2) They are not diversified.Some people take a punt on just a few stocks, hoping they'll strike it rich. They rarely do.When investing in shares, aim for a portfolio of 15 to 30 individual companies, diversified across different sectors. Having 65 per cent of your portfolio in the big four banks is not diversified. When investing in funds, aim for a mix of global, growth and potentially income funds. Remember that each fund probably holds 50 different positions, so you don't need to hold more than about four different funds.Not all individual positions will be winners. But over time, the gains from the winners should far outweigh the losses from the laggards. In dollar terms, expect 80 per cent of your gains to come from 20 per cent of your holdings.3) They give up when the going gets tough.Stock market investing should be a lifelong endeavour.The opportunity to earn out-sized returns comes because there are risks. If you don't want to take a risk, stick your money in a term deposit and earn 2 per cent per annum. It's safe, but about as rewarding as being a Carlton or Parramatta fan. There are individual company risks, like former high flyer Big Un, an investment that will almost certainly be worthless.And there are volatility risks. On average, stock market corrections come along once a year. They are designed to make you sell at the worst possible time. When they come, stay calm. Don't panic. I deal with them by not even looking at my portfolio. And by making regular investments into the stock market, no matter whether it's making new highs or throwing a temper tantrum.Speaking of corrections, the Australian stock market has fallen for the past 7 days.Wall Street is jittery, with tech stocks on the nose. Depending on what you read, that could be because they are over-valued, under-regulated or investors are taking profits.I read this week of one commentator who said he can see the big US tech stocks falling 50 per cent. Anything's possible, but I have my doubts. Companies like Facebook, Google, Apple and Amazon have huge competitive advantages, generate real profits (real big profits) and are not overly expensive.Commentators making big sweeping doomsday predictions -- often using backward looking charts to back up their over-hyped claims -- conveniently overlook that these companies have been growing profits like gangbusters. When companies grow profits, share prices follows higher, over time. Go figure.The ASX's own poster children for expensive stocks are CSL Limited (ASX:CSL) and the aforementioned Afterpay Touch.The share prices of both companies have come off the boil, with CSL shares falling this week from $230 to $210 and Afterpay shares falling from a recent high of $23 back to around $15.50.That's an almost 33 per cent fall for Afterpay shares in just the last couple of weeks.It's as if the bitcoin crowd was looking for a new play-thing. Like the people who bought bitcoin at the top of the market, they found you can't always get rich quickly trading Afterpay shares.I have high hopes for Afterpay.I don't own the shares directly, but two of the funds I own have large positions in the company.Like me, I expect those fund managers will be patient. Unlike most ASX-quoted companies, Afterpay truly has the potential for global domination in a large and growing payment technology market.As for CSL, it's a great company, growing nicely. But for a company with a market capitalisation of around $100 billion, it's trading at an off the charts valuation. I'm happy to watch that one from the sidelines.Thanks for reading. Please check out (and bookmark) The Capital Club to see my daily musings on the Australian share market, where I'm seeing opportunities, and what I'm avoiding.A small sample of weekly articles is below. I trust you find they are of value.
