investing mistakes

This article is of the writer’s experience and opinion. If you require financial advice then see your bank manager or financial advisor.

Learning from past investing mistakes

By Robert A. Stewart

“He who never made a mistake never made anything,”

But, there is no need to make a mistake if you can help it. How? By learning from other people’s mistakes.

The most tragic thing of all is to not learn from your own mistakes; here are some tragic examples which have left people with badly burned fingers.

In October 1987 the share market crashed big time; there were horrific stories of mum and dad investors losing fortunes. Leading up to the crash investors would borrow money to purchase shares by using the value of their shares as collateral. As the share values increased, they were able to borrow more and more money. One story I was told was of a man who borrowed money using the value of his home as collateral.

Many companies were basically called paper shufflers; in order words they were not producing anything tangible but trading in shares.

It took several years before the market recovered.

One should never borrow money to purchase shares which is the first basic lesson of investing.

During the Global Financial Crisis several finance companies went belly up in NZ; these included Provincial Finance, Hanover Finance, Dominion Finance, Lombard Finance, and South Canterbury Finance. There were sad stories with one common one being of investors who had their whole life savings invested in the company. The media’s spin on this is to tell the viewer about the investors who lost everything they invested but that is not the case. The truth is investors were drip-fed money from whatever money the receiver’s could recover.

The investors concerned had a lot to say about all of this but one thing that was never mentioned was the fact that they placed all of their financial eggs in one basket. This is a fundamental mistake. In one case, an investor had NZ$400,000 invested in Hanover Finance. One would have thought an investor with commonsense would have spread their money around.

It does make one wonder whether someone provided this investor with misleading advice.

The second basic lesson is to not place all of your financial eggs in one basket.

Cryptocurrency such as Bitcoin and the like have been very popular during the last ten years. Stories of great wealth have been floating around from time to time of investors who have invested x number of $ and turned it into a fortune worth x. My view of Crypto Currency is that it should be treated as a bit of a gamble where you only invest discretionary income in. Only money you can afford to lose should be invested in crypto currency.

It should be worth remembering that for every person that made a killing of some kind, whether on the share market, cryptocurrency, or other kind of investment, there will be a lot more people who lost their money. What usually happens is that many of those who made the killing will try to repeat the feat and end up giving back most if not all of their gains.

A company called “Cryptopia” which was basically a blockchain which held funds invested in Bitcoin was hacked into and all those with bitcoin invested with cryptopia lost their money. There were some sad stories of an x amount of $ lost.

The third lesson here is to NEVER invest money in cryptocurrency which you can not afford to lose. In other words, only use your discretionary money for Bitcoin.

It is certainly well worth remembering that if there is a chance of capital gain then there is also a chance of capital loss. That is the nature of investing.

The bottom line is this; “It is up to YOU, the investor to take responsibility for your mistakes.

www.robertastewart.com

He who never made a mistake…

never made anything.

You could read all you can about the sharemarket but investors will from time to time go against their better judgement and invest in something because of greed or it is something they are interested in. I have lost money in the past from some of my investments.

Here is a sample:

Air New Zealand (early 2000s)

This company I thought was a reasonably safe investment. Air New Zealand was once owned by the government but it was privatised during the late 1980s or 90s. However, the company almost went under during 2001 I think it was when their shares dropped to 14 cents each from about $1.50. The government bailed them out and still owns about 51% of the company. During covid, the government bailed them out again after the border closures placed them in a financially precarious situation.

Lombard Finance L.T.D

This was one of those finance companies which offered higher interest rates than the banks for fixed term accounts. Lombard as it turned out had too much money tied up in too few projects and when one of their creditors folded it brought Lombard down with them. It lent money to property developers. Lombard Finance collapsed in 2008

Provincial Finance L.T.D

This company lent money for consumerable items such as cars etc. It, like Lombard, offered higher interest rates for fixed term than the high street banks. It was also a victim of the Global Financial Crisis.

Dominion Finance L.T.D

Another finance company which fell victim to the Global Financial Crisis. It too offered higher fixed term rates than the banks were offering.

Must be a lesson there somewhere.

These were by no means the only finance companies which went belly up during the G.F.C; South Canterbury Finance and Hanover Finance were high profile collapses.

Some investors lost their life savings in Hanover FInance.

That is a classic case of putting all your eggs in the one basket; a crucial mistake which affected how some folk will live during their retirement years.

Greed sometimes over rules better judgment.

We sometimes hear stories of young folk who have bought xxx stock in xxx company which has risen in value by a ridiculous amount. This type of rise is not sustainable and it is only a matter of time before the rising share value slows or in some cases takes a spectacular dive.

I mentioned young folk because they do not have the past experience of older investors.

It has to be said that those who have made the most investment mistakes are likely to be in a better financial situation than those who played it safe all their lives and just kept their money in low interest accounts. Certainly better than those who are spenders rather than savers.

The bottom line is that it pays to diversify and spread your risk but the level of risk one takes is dependent on a person’s age because younger people have more time to recover from financial mistakes.

A lot of people cannot stomach the thought of losing a few grand on their investments yet would have problem frittering that money on lottery tickets, cigarettes, or booze. In order to achieve more favourable financial outcomes it is important to do a stock take of your outgoings (spending) and transfer money which would otherwise have been wasted into something more profitable. This could be starting an internet-based business, investments, or upskilling.

This article is the result of the writer’s experience and opinion and not considered as financial advice. If you require qualified financial advice see your bank manager or financial advisor.

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