Instead, I decided to invest most of my money in the stock market.
Given my woeful misjudging of London property prices (they went on to double) I’m probably lucky I fancied myself as a stock picker rather than a real estate tycoon.
Here are a few lines from the investment diary I began at the same time:
“I think that we are about to see the market tick up again. I think terrorism is priced into the market, that after three years the worst is over, and that now is a good time to invest, particularly for the long term. I can’t keep writing ‘touchwood’, so assume that’s a standing thing for this entire investment log!”
I intended to be a pure tracker fund  investor – pretty radical back in 2003.
However I did also buy some experiment blue chip shares for income , and over time these and later small caps, investment trusts , and eventually all sorts of securities both here and abroad captured my imagination.
Active investing had weaved its magic on me.
I don’t write much about my active investing on Monevator. Mainly that’s because I think few people should do it, and that the reasons why you might are nothing to do with planning for a comfortable retirement.
I pick shares for the fun, the challenge, and because I seem to be compelled to. Most people should invest passively , but increasingly I don’t.
As Walt Whitman wrote:
“Do I contradict myself? Very well then, I contradict myself. I am large, I contain multitudes.”
With that wealth warning and the pretentious poetry out of the way, here’s a few things I’ve learned that might be useful whether you’re a passive or an active investor.2 
Maybe these are all obvious to you, and I was a bit slow on the uptake. Or perhaps you need to live through some things to really understand them.
1. It will happen again
When I first started learning about investing, I thought I’d arrived late to the party. Everyone was licking their wounds from the dotcom bubble , and everyone knew Warren Buffett’s maxims about being greedy when others are fearful.
There seemed little to do but hand over my money to the robots.
How wrong could I be? If anything people are forgetting faster nowadays. Within a few years of my starting, we were neck deep again in a bear market  that had its roots in excessive risk, and equities were supposedly dead as an asset class.
It’s all happened before. It will happen again. People don’t change.
2. Not everyone is contrarian
The day I left school, I walked out of the back gates while everyone signed each other’s shirts at the front. I had friends, but I was no friend of school. I hated being told what to do, what to think, and when to do it.
Throughout my adult life I’ve regularly made the case for unpopular or even unpleasant notions. I wasn’t always right, but that isn’t the point.
“Look around this table,” an exasperated friend once said. “Can’t you see that every single one of us disagrees with you?”
She meant it as an appeal to switch sides. That sort of thing just makes me dig in harder.
Lots of investors say and even believe they’re contrarians, but they’re not really – they just think the popular and cool kids are contrarians. They think this while following the crowd.
I’ve had to endure a bit of flak in real-life for my willful ways. I’m essentially unemployable in a conventional office environment .
But in investing, being awkward and independent is a boon.
3. The bear case always sounds smarter
Perhaps it’s a product of being invested in a decade defined by various crashes and calamities, but being contrarian while I’ve been an investor has often meant being positive  about the future.
In my experience, many people – particularly the 50-something males who dominate investing, both professional and amateur – think being contrarian means thinking the West is doomed, that productivity is dead, that the stock market is done with, and so on .
The adage that the bear case always sounds smarter is a rare case of something I decided for myself – rather than reading it first – although I soon discovered that wiser minds had reached the same conclusion long before.
I don’t know why it’s true, but it is. People are drawn to doom mongers and see the logic in their every utterance. Just look at the almost invariably gloomy news headlines – those editors know what people want to hear.
Perhaps it’s to do with our biologically driven risk aversion3 .
The irony is you can waste a lot of time and lose or at least forgo a lot of money by being a pessimist when investing.
There’s always a good home for your money somewhere.
4. It’s okay to sell shares
As a newbie, I was much taken with Warren Buffett’s supposedly favourite holding period: Forever.
Later on I learned Buffett often didn’t invest like that , and neither would I.
I still see the logic of buy-and-forget for certain kinds of portfolios, particularly if you want to be a stock picker for whatever reason  and yet you only have limited time, interest, or application. (In most cases then you’d be better off being passive, but that’s another 900 articles …)
These days though, I revel in the joy of selling shares.
I won’t debate running winners versus cutting losers, or how you never went broke taking a profit. All the adages are true, and contradictory.
I’ve lost all the money I put into one company, and one share I sold is up at least 20-fold last I looked. This sort of thing happens to you if you actively invest long enough.
What I will say though is I love the feeling of going to cash . All the risk evaporated in an instant, until the next opportunity-cum-booby-trap.
If I could get 8% on cash in a tax shelter in a 3% inflation world, then for all my love of shares I’d probably go 50% cash tomorrow.
5. Compound interest works. It really does.
It’s a daunting climb when you first set off towards your investment goal, whether it’s financial freedom, early retirement – or being able to pack up work at all.
But it gets easier. Honestly!
The great thing is that your money starts to do the heavy lifting for you. Eventually your portfolio goes up and down in a few weeks by amounts that would have taken months if not years to save.
This is mathematically obvious. If you earn say £40,000 a year and you can save £4,000 a year, then when your portfolio is £80,000 in size, a mere 5% fluctuation equates to your annual savings. Over the years, your money compounds copiously .
Still, seeing is believing. I recommend it.
6. It pays to pay attention to taxes early
I’ve written a lot of posts about taxes  and investing because I have a fair amount of money outside of ISAs and SIPPs, and it causes me headaches every year. I’d rather you avoided them.
Nowadays I fill my ISAs religiously, but I didn’t open any until 2003.
I’ve been shoveling money over as fast as I can each year, but it’s clear that short of retreating to an Ashram and renouncing all worldly work, I’ll never get all my money tax sheltered.
That means faffing around to try to avoid capital gains taxes, taxes on dividends, and so forth, and it has entailed long fiddly submissions to the Inland Revenue.
Some people criticise my emphasis on reducing or avoiding taxes. Good for them if they can afford to forego the thumping great swathes that taxes will chew  out of their investment returns, on top of whatever income tax they pay on earnings. It’s enormous.
I can’t, and most of you can’t either. So think about taxes early.
7. The market is not completely efficient
I don’t have much to say about this. I’ve read the literature. I know that some academics will disagree with me and say I didn’t see all the risks , or that I was being paid to supply liquidity, or whatever.
But if you’re any “good” at active investing – itself a rightly controversial subject, and in most cases probably synonymous with luck – then you eventually see too many signs of the inefficient market to put it in the same box as pink elephants, the yeti, and Father Christmas.
That’s not to say you or I can profit from market inefficiencies.
I’ll not be completely sure whether I’m a good investor for as long as I live, whatever returns I post. Some say even the acknowledged greats would need to re-run several more lifetimes to be certain.
But I am sure the market is not efficient .
8. Everyone always saw it coming
Given all the doom-mongering out there, it’s inevitable that there’s someone who predicted whatever crash or catastrophe last hit us, or whatever one is around the corner.
True, they often spoke years too soon, and there are rarely very many of them – certainly compared to the vast number of people who claim they saw it all coming once it has actually come.
It’s the same with good news. Most fund managers only bet on shares going up, so if there’s a new tech revolution or a banking renaissance or whatever, then some handful of people will have opined upon it beforehand in a note or an interview, even if most of us dismissed it as a fad.
When I began investing, I thought everyone had much more foresight than me.
After I wised up I’d get really infuriated by this retrospective brilliance – until I realized that most of them genuinely believed their memories of their accurate forecasts to be true. Such self-delusion  must be another of those cognitive bequests from evolution.
The bad entries are a usefully humbling antidote should anything be going too good for five minutes.
9. Many shall be restored that are now fallen
Ben Graham , the man who taught value investing to Warren Buffett, touted this quote from Horace:
“Many shall be restored that are now fallen, and many shall fall that are now in honor.”
Graham was talking about value stocks that come back from the dead. Horace was talking about words and poetry.
No matter, they’re both right. People are creatures of fashion, and we’re all subject to economic cycles.
As I put it less poetically: Never say never again .
10. Barring a revolution, this is going to work
While I’m an optimist when it comes to investing, I’m a gloomy old soul when it comes my personal circumstances.
I’ve few doubts that when I hit my goal of complete financial freedom, the 99%  will rise up and tax or take it away from me.
Just my luck! After 30 years of capitalism, a frugal saver who happened to learn the ropes will be first up against the wall.
An indebted peasant’s revolt aside (and touch wood – illness or misfortune can strike at any time and is the sort of thing we should really spend our time worrying about), I can now see that this self-directed investing lark is very likely going to work out for me.
In fact, my problem is more likely to be remembering why I was doing it, because I’ve grown to enjoy it so much for its own sake.
My capital has increased six-fold since 2003, through a mixture of saving and investing returns. The Accumulator warned me earlier this year that there was no way I was going to liquidate a big chunk of my portfolio to buy a house – because he knows I’ve grown to love running what he calls my “DIY hedge fund”.
That tells you that The Accumulator is as astute about people as he is about cheap discount brokers. (You should hear him on Prussian military history).
I couldn’t imagine in 2003 that investing would become such a passion that a decade later I’d be spending dozens of hours a week on it, willingly and with a smile on my face.
Be careful what websites you read. Next up it could be you!
- I’d already squirreled away multiples of my post-tax annual income. [↩ ]
- i.e. This is not what I’ve learned about reading a balance sheet, or about returns on incremental capital, or about subordinated debt, et cetera et cetera! [↩ ]
- Although we don’t seem to be able to apply our desire for survival to genuinely important risks, like the degradation of the environment . [↩ ]