The first poll here at OneMint was born out of my exasperation with emails from readers inquiring about mutual fund refunds, and I never expected it to take the momentum it has. There were some great comments, and thenÂ Gaurav shared the story about his journey, and today I am glad to share Tony’s narrative, which is really really interesting because it gives a perspective from someone who made and lost significant sums in the market, has taken control over his finances, and is in the UK, keenly observing India, I think he must be a pretty unique investor.
Here is his story, do leave a comment, and tell us how you feel.
Though I live in the UK, – Iâ€™m very interested in India and OneMint is one of my favourite sites. Iâ€™m supposedly an educated, professional, but I was DUMB. Iâ€™ve been investing for 10 years, but consider myself a novice because I foolishly relied upon investment professionals until recently â€“ this was an expensive mistake!
Probably as a result of my previous bad experience, Iâ€™ve decided the most important aspect is asset allocation. I have decided my ideal split (30% UK equities, 20% global equities, 20% commodity-related (e.g. oil or mining), 20% bonds, 5% property etc.) and I invest new money according to any shortfall in a category.
Hopefully my story will interest you and encourage other novices to gain investing confidence.
Hereâ€™s some background information:
Date UK FTSE 100 index value Comment 10 Sep 2007 6134 Retail bank (Northern Rock) receives liquidity support from Government 01 Nov 2007 6723 FTSE reaches high point! 19 Feb 2008 5966 Northern Rock nationalised 19 May 2008 6302 Just before stock market â€œcrashâ€ 17 Sep 2008 4912 Announcement that 2 large retail banks will merge (Halifax Bank of Scotland and Lloyds Bank) requiring Government assistance 09 Mar 2009 3460 FTSE reaches low point! 26 Aug 2010 5155 Today
Prices from Yahoo Finance
The peak to trough fall isnâ€™t that different to what happened to the Indian stock market (and everywhere else in the world). However, I can honestly claim that it was obvious to me that this was about to happen, although I grossly underestimated the size of the fall. My financial adviser (and most market commentators) were keen to tell people to keep investing until the very end, including buying shares in the distressed Northern Rock at a â€œbargainâ€ price (investors lost everything).
In July 2007, I ignored such advice and sold 25% of my investments and kept the money as cash. (This was still dumb: if I was clever, I would have sold everything and shorted the market!)
I didnâ€™t know what was happening in the USA with Lehman, AIG etc., but I had heard news about increasing property repossessions.
In the UK, it was becoming obvious (to me) that the property boom and the massive increase in credit had totally distorted the economy. Everyone I knew was reading â€œRich Dad, Poor Dadâ€ and buying multiple properties using borrowed money. I didnâ€™t join my friends because the sums didnâ€™t add up â€“ the problem was that the rental income didnâ€™t cover the loan repayments â€“ the assumption was that property values would keep increasing forever. I thought individuals (and banks) would fail when property values eventually fell (as they did in 1990) â€“ I didnâ€™t know that it would be the lack of credit that would cause the crash.
So, I was clever, but not that clever because I continued to invest 75% of my money and then lost much of it. How much I lost is hard to quantify because I think most investors lost money in 2008/2009. I lost money compared to cash obviously, but I lost money compared to say a simple index tracker. I didnâ€™t understand (or was advised) about asset allocation â€“ hence other than my 25% in cash, my portfolio in (badly managed, expensive) mutual funds crashed massively.
I believe I lost about 25,000 GBP (approx 1.8m INR) more than I think I should: this is a large sum to me.
In the UK, financial advisers, banks and insurance companies are regulated. This means next to nothing. Banks (almost) collapsed. Advisers vanished. Occasionally fines and compensation are awarded. Meanwhile, individual investors are worse off.
Rather than blame everyone else, I decided to take responsibility for my own (financial) destiny. So I read everything I could (books and websites) and began watching business TV shows. I started to make my own decisions for the first time and make my own mistakes!
At first I didnâ€™t have a strategy: I followed tips and I was a little stupid at times. I found that I enjoyed the subject and I was prepared to invest my time researching individual stocks. Over the past year, I have developed my strategy as follows:
â€¢ Minimise tax (take advantage of any legal tax avoidance schemes such as retirement plans)
â€¢ Minimise costs (administration and dealing costs)
â€¢ Minimise risk by diversification and asset allocation
â€¢ Seek value e.g. quality companies that the market has mis-priced (e.g. P/E ratio less than 10), financially strong (low debts), no pension scheme deficit (a big issue in the UK) etc.
â€¢ Use ETFs to gain exposure to a particular market
â€¢ Only use a mutual fund if the fund manager offers substantial value over the equivalent ETF
There is always a lot to learn from mistakes, and the wise ones among us learn from other people’s mistakes as much as they do from their own.
Tony has made and lost more money in the past few years, Â than most investors do in their entire lifetime, and he has learned a pretty important lesson about asset allocation, which all of us need to grasp to be successful too.
I will elaborate this concept further in the coming week in a post of its own, but for nowÂ I am very keen to hear your story, and what you think of Tony’s style, and how you developed an investing style of your own, so please Â leave a comment or drop me an email.