I have a friend who got lucky on the stock market. He didn’t know anything about investing so he followed a tip. The tip turned out to be a golden ticket. He made a lot of money quickly.
How much more could he make at this rate? Why hadn’t he done this before?
The strategy was obvious: double down.
He put an app on his phone. Talked about crypto. Gold bars in the house. He’d caught the bug.
If it was exotic, risky, and backed by a get-rich-quick theory then he was into it.
He kept gambling. Kept pushing it. High like a tourist in a casino. On a hot streak.
Until his luck ran out.
He no more understood why he was losing than he had when he was winning.
He hadn’t learned the fundamentals. Couldn’t bear to put it down to dumb luck. Now he had two problems:
- The loss of a paper fortune.
- The loss of his self-identified investing genius.
He was a busted flush. Staring into the ashes like a defeated emperor.
Today he’s in full retreat. Rebuilding is unthinkable because it means facing the facts. Nobody wants to be thought a fool. Least of all by themselves.
He’s just turned the wrong side of 40. It’s past time to get a plan. But moving back up to the start line has turned into a walk of shame – in his head.
You won’t read about him in any newspaper. He’s neither rags-to-riches nor riches-to-rags.
He’s just another guy who wasted time and money on a shortcut.
Take it steady,
The Accumulator
Reader! Do you have an anecdote to share about the perils of (not) getting rich quick? Please share it in the comments below.
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I guess this is particularly relevant to those who have shares in Tesla. Many seem to think it cant go down!
I’ll make do with the ~0.17% share in my vanguard FTSE global all cap fund.
Back when I was young during the dotcom boom a friend of mine made a packet on a tech share which he subsequently tipped to me. I had 15K that my recently departed grandmother had left me burning a hole in my pocket. So I invested the lot. What could possibly go wrong? Everything, as it turned out: the company went bust and I lost the lot. And this, dear Monevator, is why the world needs the likes of you. Keep up the good work – not so much for those of us who’ve already received and benefitted from your wisdom (although it is very useful for keeping the likes of me on the straight and narrow) but mainly for those still to learn.
My first attempt at gambling on the stockmarket involved some ill conceived investments in companies like Rio Tinto, RBS, Amec, BP, United Utilities and Mulberry Group. I had no investment or savings strategy, no idea at all. I followed leads in newspapers, tried reading an FT investment guide, liquidated my entire holdings when I bought a house with my wife (well except for those pesky RBS shares, they managed to liquidate themselves). My Mulberry Group hail mary meant that I ended up on top for my 2 years of half-arsed exposure to equities, but through absolute no skill of my own.
Four years later and I was looking at what to do with an old superannuation fund in Australia, an old stakeholder pension I had from contracting days and my wife’s company pension, mostly looking to save on fees. I can’t even remember how I got onto passive investing, but through Tim Hale and Monevator I’ve been nearly 6 years on the straight and narrow with no regrets. I can’t be the only reader who uses the SNS portfolio as somewhat of a benchmark.
> He’s just turned the wrong side of 40. It’s past time to get a plan.
flippin’ heck. While the thrust of your narrative is cool, and apposite, and not to be gainsaid, on begalf of desperate old gits let it be known that I started after I was 45. While I had a decent, though pedestrian foundation to build on (decent amount of pension savings, spent less than I earned in general, had paid down my mortgage a bit rather than endlessly borrowing against it).
I even had some of your mate’s muppetry in the dotcom bust. But the difference was that I didn’t get the high he did, so I was able to come to terms easier with that I had been a muppet. I still have a whole folder full of contract notes, at expensive late 1990s prices to boot, so remind myself. Do. Not. Churn.
I fear that as time goes by the art of investing for most of us is learning what not to do. Forget about what you have to do right, it’s what you do wrong that gits ya. Do less of that and you start to get ahead of the pack, even if you’re never going to be Warren Buffett.
I started years ago with Insurance Company products -Norwich Union ,Scottish Widows,NPI ,Equitable Life etc
Totally opaque re charges etc but what did I know
Then added a M&G Investment Fund as I learnt more re stockmarkets
Discovered that an equivalent stand alone M&G Fund made as much as the same fund in a Pension wrapper even though contributions to the Pension version attracted 40% tax relief!
That gave me a clue to the size of Insurance company and Investment Fund costs!
There was lots of leeway for me to make errors and still come out ahead
Exited the lot (including Equitable Life) with capital intact and invested in Investment Trusts pensions-Witan, F&C,Alliance Trust etc
Then discovered Index Trackers (John Bogle)and therefore that all these Investment Trusts were expensive closet index trackers
Now in Interactive Investors with 3 Vanguard Global Index Tracker funds only-2 Equity and 1 Bond-for last 20 years
Cheap ,easy to understand
Did the business for me
Will it be like this to the end-now 74
One Life Strategy fund only appeals -if I can be bothered
xxd09
My Dad got lucky with buying private equity in his company in the early 90s on an internal share offer for employees. Only small amounts which were then worth alot more by the time an IPO came and the share price rocketed over subsequent years. He sold down holdings to upgrade the home, pay down the mortgage, pay for a big holiday occasionaly so he was constantly winning and realising an investment benefit with a continuing share price increase far beyond the UK, US or global market. Once listed he then always took part in the attractive company schemes of 3 for 2, option price etc so was still winning there too with the constantly rising price and dividends a bonus. The share price hit its peak in 2006 before the crash. The share price post GFC failed miserably to keep up with the UK or Global market but he had an emotional attachment to this golden share for the company he worked for. Luckily he sold down half his holdings around 2014 on a peak given the pestering of advice from myself and brother but the story since with the other half holdings is of a company long overdue blowing up its share price for holders. The company is Kier Group with a current share price of 60p which was once £25 and £1.80 when listing in the mid 90s. My Dads lucky in that he got out to spend far more than he put in over the years during the crazy good times and cashed out a chunk into a proper diversified portfolio which remains and is doing fine. There are alot of grim stories though of collegues in there 50s/60s with big 6 figure plus lifetime saving pots blown that are never coming back. Luckily most of them would also be on good DB pensions but they wouldnt be rich enough that these kind of hits are not a big blow to retirements, future plans and overall wealth. I feel sorry for alot of them but these are not in the main stupid people so Ignorance and uneducation comes at a big cost in the world of investing. Sadly my Dads work colleagues are not unique with the amount of older workers out there that have there whole fortunes tied to the companies they work for without understanding the risks that they are exposed too when job, pension and personal savings and investments are all tied to one company.
You seldom hear about them sadly, but they often have the best lessons. One of my recent ones: https://signalee.com/2020/07/07/bankrupt-pyxus-international-inc-stock/
I invested in a unit trust run by Deutsche Bank once. At the time it was a revered investment bank and the fund’s manager had just been named fund manager of the year.
What could go wrong?
Unfortunately it turned out that the fund manager was a self-mutilating, cross-dressing, diagnosed schizophrenic who turned up at his fraud trial in drag calling himself Pamela.
Everyone thought he was trying it on until it emerged that he had cut off one testicle with a craft knife.
True story: https://www.theguardian.com/uk/2002/jan/25/juliafinch
After that I decided to stick to passive investment.
Well i was going to comment but I can’t top that @neverland lol. I’m done
I’ve learnt my own lessons on very much a small scale compared to a few on here. Uncomfortable amount of money to lose yet but I’ve certainly never bet the farm.
Your site does a very good job of getting the message across to those of us that are willing to be open to it.
Unfortunately one has to be ready to learn and some never are. If they’re not ready there’s no telling them. Much the same as trying to convey the benefits of Financial Independence or not spending everything you earn… Its just not worth your breath with some people at times.
The most valuable lesson I took from 20 years in the City was accepting how little I knew about the equity market and the folly of trying to beat it by active investment. A little humility goes an awfully long way. I believe Uncle Warren said something similar.
@lenahan
Glad your Dad got the message about diversification before it was too late. I’ve always been wary of company share schemes. The downside of losing your job, losing your capital or pension income, and perhaps even an industry sector downturn that reduces your future income potential is too significant
i’ve just been 15 minutes chuckling away at Neverland’s story – what a superb lesson, and never to be forgotten.
My personal lesson was back in the ’80’s when my mate’s dad, who’d been coining it in from all of the Government share privatisations, tipped up a penny share to us by the name of Airship Industries. A maker of Victorian travel during the 1980’s (nope that didn’t stop us steaming in, we bought 200 quids worth, each, which was about 2 weeks wages in those days), Airship Industries was ‘strongly rumoured’ to be on the verge of receiving a multi-billion order from the US Navy no less, who were apparently keen for some of this technology for their fleet. Then, there was either a US election or something (of course we didn’t follow any of this important stuff), and the Naval defence budget got slashed overnight and that was the end of Airship Industries, and my 200 quid.
In hindsight a good lesson for me, as along with a few other similar investment mistakes at the time it has helped shape my decision making for the better. I do still punt and dabble a bit, with pocket money stakes mainly in commodities, but i’ll leave things like Bitcoin and P2P to the ‘professionals’.
Closest I came to this tale of woe was joining an investment club around the turn of the millennium and the dot-com bubble and crash. Following on a few years of doing OK with investment trusts in a PEP and staying away from those high charging unit trusts (bit like xxdo9) I started paying a small amount every month with a regular meeting with pub grub to discuss our acquisitions, sales and eventually our losses. Oh, and reading the Motley Fool stuff. On paper no huge loss as I just about got back what I had invested over 5 years but with no growth, after the dot-com bubble burst, and we would up the club, but I would have done better to pay down the mortgage or even top up my ISA in one of those IT’s or new fangled ETF’s!
Still, had some great Sunday evening’s over pie and chips! And it taught me a lot about trying to actively invest…..and that I should stick with those diversified (if glorified index) funds I’d been investing with for years.
I moved my old company pension into a SIP and put 50% into VLS80 and the other 50% into Woodfords Equity income. They tracked each other initially but then Woodford started to drop. Sold it and took out exactly what I put in meanwhile the VLS80 was up 20%. Lost opportunity but could have been much worse given what happened with that fund.
> I’ve always been wary of company share schemes.
Sharesave is alright because it’s a one way punt – you get the right to take up the options but can leave ’em be if they’re not in the money. Incentive plans are a different think, though saving 40% tax you otherwise wouldn’t have save gives you a fair amount of downside protection.
I agree that it’s mad to hold onto the shares after exercising the option. You need a very good reason to hold shares in your employer t compensate for the double whammy of losing your job and having your savings hammered if it all goes south.
Yep exactly what ermine says. I have two a Saye where you only own the shares for a very brief period at the end and are guaranteed to buy 5% below the original purchase price. And a SIP where you do buy the shares every month but 90 quid gets you 150 quid as they’re tax free if you hold on to them 5 years. Currently worth about 8% of my non pension non property net worth and less than 2 % of my pension and isa. I will sell them as they unlock at the end of year 6 on a rolling basis and diversify into index funds or pay down the mortgage
@ Neverland – Blimey. That really is a bit too active isn’t it?
@ Kid Cocoa – “A maker of Victorian travel during the 1980’s” – haha. I see you love a contrarian signal.
I was given some company shares in the 90s which went stratospheric in the dotcom boom. I’d read somewhere that stocks were for the long run, so my eyes span like a fruit machine as I imagined what they’d be worth in 15 years time. The answer was a few pence as my dotcom darling turned into a penny stock. I got shot of them a couple of years ago as they continued to bump along the bottom. They promptly ten-bagged and more. [Falls to the ground and beats it with his fists]
Too new at this game to have had any major foul-ups, but reading the above has given me food for thought. I think TA’s story provides the most comedy value (sorry, TA): hit for six, twice on the same stock! Sheesh, the gods really took a dislike to you there. 🙂
Hugely important article this Monevator.
49 year old and if I could do my investing again I would somehow try to put my cash into a global tracker on a monthly basis and that is it.
Been doing it for the last few years having made every foolish investing mistake in the book.
Thankfully I now have the discipline and nous to continue doing it. Shame though I didn’t arrive at this year’s earlier!
My early and not-so-early investment disasters were a highly expensive and very traumatic education.
Some highlights:
1. In my 30s I decided that day trading was the certain route to instant wealth. I gave up in disgust after 1 year with only a tiny profit. I was so naïve that I didn’t know this was actually an above average result.
2. I was given 10 bagger inside information on 2 shares. I got zilch by being too cautious with one and impatient with the other.
3. In the Asian Financial Crisis, I found myself disastrously exposed to only Asian shares and Asian property. I had to liquidate all assets to cover my losses and, mercifully, found myself only totally broke. At the same time I was unable to work again in my profession and recoup due to serious heath problems.
4. With absolutely nothing to lose, I took horrendous risks shorting the Dot Com and Great Financial Crisis bubbles. Amazingly, they worked and saved me. Now that I have actually got something to lose, I would be absolutely terrified to try anything remotely similar.
5. It took me 30 years of investing to eventually realize that I needed to invest in passive ETFs, ITs and diverse solid company shares.
Don’t try this at home.
TP2.
@neverland – the fraud bit would put me off but I’d see the cross dressing schizophrenia as the possible cost of genius – maybe you have to be crazy to really have an edge, on the other hand maybe you have to be ultra normal to understand what the public values in a way that we investors are not
Anyway I’d consider say 5% allocation to such people as long as theyre not fraudulent
@Matthew
You only find out they are defrauding you after the event usually.
People who start their investing spiel with “Well this is a ponzi scheme, so …” generally don’t raise much.
Although from what I understand about cryptocurrency even that isn’t necessarily true any more.
A familiar story, reminds me of https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator
It’s never too late ..
@neverland – at first I thought crypto had no underlying value, but actually it has value in evading sanctions & taxes, and money laundering, and the added trust of blockchain is helpful for criminal transactions where the transaction itself is risky
I’m not sure why its still legal to withdraw money into a bank from a crypto account, maybe whatever countries/banks are willing to take in this cash will benefit from it, and there will always be a haven willing to take it somewhere
I’d say gold has underlying value only from such an established demand that itd be difficult to actually permanently collapse, I think crypto might get that way
@Matthew
Well thats the thing. I don’t believe that gold actually has any underlying value. Its just a great big ponzi scheme.
If you believe in gold you might as well go the whole hog and invest in star wars figures, polynesian conch shells, fine wines, classic cars and crypto tokens.
I guess that would at least diversify your risks somewhat.
I worked at Barclays when they bought Lehman, and the guys that came from Lehman were distraught. Their stock options were heavily discounted, and some had worked there for years, so had seen them as an alternative pension.
One guy told me he’d lost over $200,000 in shares he’d bought over the years. Lucky for me he went through it so I didn’t have to…
@neverland – cars are an interesting one, if we must drive one it might as well be one that appreciates for an acceptable opportunity cost, so my thinking there was to drive a banger until it became a classic & repeat, but now I find the price of bangers has gone up quite a bit since I last churned – maybe its one of the few things that can be used for money laundering (along with incidently the other examples you gave) – I would find it difficult to hand over thousands in a private transaction for an unknown car (let alone the transaction risk) and dealership cars actually almost look better value now for the years of driving you expect to get back – maybe because of tighter laundering controls, and/or fewer people able to buy newer or deakerships artificially inflating 2nd hand prices to make pcp deals cheaper
Id be worried about the liquidity of wine (realised what I just said!) And its shelf life – itb be like buying a leasehold
Gold I suppose is used in electronics and maybe as a catalyst, in gold teeth as well as gold leaf in diaries lol – but I think like fiat currency its just the sheer weight of established belief in it.
You could make more gold in fission or fusion reactions, albeit radioactive
Perusing my copy of the Oldie today I came across a financial adviser called Saltydog Investor
In the blurb he tells the cautionary tale of how he came to doing his own thing
An IFA put all his savings in split capital investment trusts-remember them?
I was already far enough down the investing road to avoid them like the plague
A dodgy adviser and 3 lawyers later-11 years-he got some of his money back-and could start again
I remember that after the split capital investment trust I could never entertain Aberdeen Asst Management with any seriousness again
xxd09
@xxd009
Split capital investment trusts are a fundamentally good product – they just split out capital and income for the investors who wanted each of them
I invested in them very happily in the last century and they did what they said on the tin very nicely, no complaints
The ‘innovation’ that did for them was investing in each other to boost the headline income and the blame for that can be laid at the door of what is now Aberdeen Standard Life
That said the risk was plain as a pikestaff from their regulatory filings and well understood in personal finance publications in at least the decade leading up to their implosion
> its just the sheer weight of established belief in it.
But isn’t this the inherent problem of money? It’s a claim on future human work. You gotta believe in that:
a) you or somebody you care enough about will be in a fit condition to make the claim in the future
b) there will be a counterparty that will do the work for you that you want done. Even if that work is embodied in some object you want to buy rather than a service.
c) the exchange rate will be broadly comparable. If you’re really lucky you will get more in future than you have foregone.
Money is a proxy for all those things wrapped up together, but they are contingent on future capabilities and counterparties fulfilling their end of the bargain. That applies to gold, to bitcoin, to Great British Pounds stuffed in your mattress, and to the numbers changing on your screen that you exchnage all those valuable hours of your life that you’ll never live again looking at numbers changing on your employer’s screens or carrying bricks for him, whatever your trade may be. There is no independent and objective store of value outwith human society that I can think of.
@Ermine
‘That applies to gold, to bitcoin, to Great British Pounds stuffed in your mattress, and to the numbers changing on your screen that you exchange [sic] all those valuable hours of your life that you’ll never live again’
A government stands behind money, no one stands behind gold or crypto-currency. .
Take Mt Gox for example https://en.wikipedia.org/wiki/Mt._Gox
There is a difference. But that is of course affected by the *quality* of your government
Thanks for that clarification Neverland
I was aware that they were a good product gone bad
“Innovation” is often a reason/excuse for poor financial behaviour
My “antennae”however were up re the financial industry and its innovations most of which seem to place the customer a good last!
I had been a user of Investment Trusts but I gave this product a miss
Well done me -the average amateur investor!
xxd09
Maybe ponzi schemes that are big enough are reliable enough to hold a small diversified allocation to them, although Id expect if it was significant you’d recieve that exposure anyway through passive equities.
Ie if holding gold is acceptable because its so established at what point does a similar allocation to bitcoin/others become acceptable? Just as crypto could be outlawed so could private ownership of gold – ie “treasure” is property of the state. A state could ban ownership/sale of gold to shore up its own currency
I have a tale from the dot-com boom and bust, I worked for Marconi for a short time and they offered shares on an employee purchase scheme which seemed a great deal at the time, so I invested a fair amount in them until the company went bust!
In addition to losing my job, my shares were worthless, so I lost the lot. I vowed then to never invest in individual shares and I kept to that rule for the next 15 years so luckily my savings have increased to a reasonable level.
However, just recently I started using Freetrade to buy some Tesla and Apple shares (among others) using some ‘spare’ cash. I’m currently up quite a bit and I have considered piling in some more, but this article may just convince me to be more cautious.
Thanks for the great site!
I fear in 5 / 10 years time we’ll be hearing similar stories of novice investors trading in their Final Salary pension and losing vast sums in the current “flavour of the month” investment.
I’ve spoken to a few colleagues who have cashed in inflation-protected FS pensions, with no idea what they are giving up, nor how to invest the cash in the DC pension.
No doubt it will be “someone elses” fault…
If your comments are true which no doubt they are -it’s a disaster!
Learning to invest takes some time -years-most people are very ignorant/frightened of shares
To enter that scenario at retirement is a nightmare -no recovery time as you learn etc etc
xxd09