Our diarist describes 6 lessons he has learned from his investing exploits so far.
In my last diary entry I said that the process of writing these articles had taught me some unexpected lessons about my motivation, approach and decision-making skills.
Here I will reflect on these and share them with you. While this may seem off the beaten track for an investment article, my intention has always been to write a broad and totally honest description of my investing journey, even if that means I travel down a few by-roads and dead-ends.
I am genuinely surprised about how revealing these articles have been for me and I hope that some readers will relate to my experiences and learn from them.
1. Our strategy for building wealth has always been half-baked
As I wrote in a previous article, my wife and I have done a good job of maximising our earnings and living well below our means. That strategy allowed us to grow our wealth more substantially than we had ever expected.
Our motivation was simply to provide financial security and a decent standard of living, rather than to be wealthy or to have loads of nice stuff.
We made use of cash ISAs, moved money around to get better interest rates and I also got seriously into stoozing, becoming a bit of credit card expert in the process. But that was it.
2. Our investment strategy lacked focus
While our net worth was increasing through earnings and sensible spending, we didn't leverage what we had.
Although we bought two properties, neither were pure investment decisions, so we did not apply any clinical rigour to the decision making. Where we have looked more closely at returns, our focus has been to minimise risk and to get guaranteed returns e.g. by paying off the mortgage.
Thinking about stocks and shares has made me think much more seriously about how our money is working for us. For example, our mortgage is index-linked to the BoE base rate and is at 1.4%, so why am I still intent on paying it off as quickly as I can? Why not use that as a cheap source of money?
3. Our cautious approach has led to missed opportunities
When we bought our first 'investment' property, we bought it with cash. If we had taken out a loan we could have had a much better return on our money.
We also had an option of buying the property next door. If we had bought both, we would have only required a 50% mortgage. When the property next door sold three years later for more than double the original asking price, we could have been the beneficiaries; sitting with £100,000 in the bank.
Ah the benefit of hindsight!
4. I have a tendency to over-analyse, especially when being observed!
My tendency to over-analyse is not news to me -- nor is it news to my dear wife who calls it "dithering"!
However, writing these articles has made me realise how much of an effect being observed has on my decision making. If I feel that I have to justify my decisions, then my over-analysis goes into overdrive.
Where I might have made a reasonably swift decision, having to justify it makes me spend far too long weighing up the pros and cons. That is a bit of a revelation to me because I can see how this happens in the work place as well, so some very positive lessons to learn there.
5. I should be more prepared to go with my gut feeling
A few weeks ago, I had an interesting conversation about decision-making with a good friend of mine who runs an investment fund valued at over one billion pounds. We have been friends for many years and are very similar in many ways, but it became clear that we make decisions somewhat differently.
While he does do some detailed analysis, he is much more governed by his gut-feeling than I am and he is prepared to make confident decisions based on that. Perhaps that is why he has the word Director in his title and I do not!
6. The importance of timing
Without speedy decision making, opportunities get missed.
As I mentioned in diary entry #8, if I had been less concerned about justifying my decisions to the readers of these articles, I would have invested some money in index trackers when the FTSE-100 Index was below 5,000.
By leaving it until this week, I have missed out on the opportunity for 11% growth.
Next time...
Next time, I turn my attention to what I will do with the remaining £3,000 that I have ear-marked for equity investments.
Previous entry: #9
Next entry: #11
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