We all know the scariest stories are true stories, so gather ’round kiddies as I tell a tale of investing horror that will haunt your dreams and send shivers through your portfolio.
In this article, I’m not going to debate the risks and advantages of taking part in a company’s Initial Public Offering (IPO).
Indeed, I’m not even going to dig into whether investors who sold Royal Mail (LSE: RMG) immediately after buying it made a mistake. They did, after all, lock in a 30%+ gain — though the shares have continued to go up ever since. Investors who took part in the offering and are still holding, as I am, are now up 65%!
Instead, I’m going to share with you two important investing lessons that I (re)learned from investing in Royal Mail.
Just 1 in 700,000
It’s not too often that individual investors get to take part in a flotation — and a Royal one at that.
Indeed, the October flotation of Royal Mail gathered a lot of interest all over the UK, with more than 700,000 of us applying to take part.
I jumped on board — a first for this Fool — and I’m glad I did.
But I was in for a bit of a surprise when I logged into my SIPP to make my Royal pledge a few weeks ago.
You see, I hadn’t checked on my SIPP in a while, and I was pretty short on free cash. I was going to be able to pledge just £1,000. I saw those ‘immediate profits’ we’d been all but promised slipping away.
I didn’t want to sell anything in order to free up more cash, as I liked the few shares I held there.
So I was stuck. I ended up pledging just £1,000.
(Of course, I couldn’t have known at the time that the flotation would be so severely oversubscribed that it wouldn’t have mattered if I’d had more cash ready, but that’s not the point.)
2 lessons that were a royal pain to learn
The lesson for me — and I’d argue most Foolish investors — is two-part.
Lesson #1 is a common-sense one: You should all keep a close eye on your portfolio, even if you’re still paying someone to look after it all — it’s your money, after all!
I’m not advocating we all check our sums daily — far from it. But monitoring our accounts (what goes in and out) more regularly will help us keep tabs on what our shares and total portfolio are doing — and perhaps let us avoid having to learn lesson #2.
Not having enough cash handy.
We teach all Foolish (big F) investors not to anchor to the price you paid for a share — long-term investors know that buying Royal Mail at 500p per share versus buying in at 550 or ever 600 will matter less and less as time goes by, dividends are paid, and the market is given time to do what it does best: march ever upwards.
But here’s the thing: You want, whenever is Foolishly possible, to keep some cash ready in case your favorite shares dip in price or you’re ready to invest in a new company.
The Foolish bottom line
I made two scary mistakes when I decided to buy Royal Mail — and they had nothing to do with the underlying investment!
I had let my portfolio sit unattended for too long, and therefore didn’t have enough cash available for me to go after opportunities like Royal Mail (of course, it didn’t matter in the end, as everyone who pledged less than £10,000 received the same £750 worth).
I’ve since changed my portfolio strategy to leave 10% in cash so that I’m ready to fire it into the market — and I’d encourage opportunistic investors to keep some cash on hand, too.
> Jill still owns her shares in Royal Mail.