Should investing be scary?
Investing. The thought of it chills me to my bones. My good friend and fellow Sterling Effort compadré Ash has a very diverse portfolio of stock and is currently trying to convince me to follow suit. My reservations regarding stocks and shares started around 4 years ago at my old job. To explain let me take you back to 2007…
It is 2007. (-.-)
I am working as a peasant at a local software and printing company in Northampton when a colleague tells me about a particular oil company in which he invested. Having no real knowledge about stocks I listened with baited breath and learnt that the stock (currently at around £0.12) was massively undervalued and that very soon two drilling rigs being set up in Paraguay where due to hit several million barrels of oil, resulting in a share price increase to around 1 pound per share. With £ signs flashing before my eyes it wasn’t long before I had bought £400 worth of shares.
To cut a long and hugely dull story short, it was a little too good to be true. Unfortunately the companies drilling rigs were behind schedule and hadn’t arrived at the oil fields, resulting in a lot of investors pulling out their cash, thus reducing the share price. Eventually the shares had crashed to around £0.04 (if memory serves) and by that time I had simply written the money I had invested off as investment fail (feeling a lot worse for my work collegue who had all his savings, around £50K in the company at the time.
Fast forward now to 2010. Three years have gone by and the stock has recovered to about the price I bought it for and breathing a sigh of relief I pull the cash out and make my £400 back.
Today my knowledge of stocks and shares is still very limited but I am beginning to understand the importance of knowing how stocks work and also evaluating a company before investing. Whether you’re a writer for lovemoney.com, a veteran trader or a finance rookie, this is the advice I would give anyone looking at investing in the stock market; Don’t rush into anything, and don’t be a sheep and do what everyone else is doing. That is where mistakes can easily be made.
So am I right in being scared to invest? Well as far as im concerned the answer to that question is yes. I do not mean that investing is a bad idea, quite the contrary, but being apprehensive and wanting to understand something before you get into the middle of it in my opinion cannot be a bad thing.
Have you had similar frights with Investments? How did you overcome them? Let me know your thoughts.
Sterling Effort was created to stuff some financial knowledge into those of us who grew up without being taught how money really works; how to make it, save it and grow it. Our aim is to give you clear and concise information regarding personal finance and hopefully provide some entertainment along the way.
Paula @ AffordAnything.orgJuly 8, 2011 at 6:34 am
I poured money into mutual funds in 2007-2008, thinking “well, they’re mutual funds. Of course they’re safe. It’s not like I’m betting on individual stocks.”
Then the market crashed and I lost half that value.
I still invest in mutual funds (well, index funds and ETFs, which are effectively the same thing, but with lower fees), but these days I’m more aware of the risks.
If I need to “use” the money in 1-5 years, I keep them in money market accounts, NOT volatile funds.
I only keep “5+ year” investments — very long-term ones — in funds. The risk now seems more real.
AshJuly 8, 2011 at 11:08 pm
Great points, Paula. Two key concepts for mitigating risk are diversification and valuation. While mutual funds and ETFs are a great way to provide diversification, they do nothing to help ensure sensible valuation. If we invest some money in funds, then the fund manager needs to allocate that capital. The manager (either human or software) is basically forced to buy equities. In 2007, investing in funds meant that we were forcing managers to pay too much for equities. Glad to see you invest in index trackers. The great thing about them is you can quickly scout the current P/E ratio online to give yourself a fair idea of their current valuation against history and then only buy at low valuations. That’s what I do for part of my ‘sensible’ portfolio. (I basically use voodoo to work out what I do in my not-so-sensible one!)
MoneyconeJuly 11, 2011 at 12:02 am
Thanks for sharing your investing experience Jay! Everyone’s got a unique perspective, I’m glad you didn’t lose your shirt – most who started during the lost decade have terrible tales to tell!
You are absolutely right – don’t rush in and at the same time, don’t miss out either! This is an excellent opportunity to pick up quality stocks at a bargain. Remember, invest don’t speculate. A company making consistent profits with a good product will still continue to sell no matter what direction the market goes.
AshJuly 12, 2011 at 10:22 pm
Yes! Thanks for helping smack some sense into him!
JayJuly 19, 2011 at 7:39 pmAuthor
Yeah once my car is sold stocks something i’m definitely going to look into! Thanks for the advice.
Harri @ TotallyMoneyJuly 14, 2011 at 10:45 am
Absolutely with you on the feeling scared front. I’m risk averse and seem to spend my life loitering on the edge of making investment decisions but then run away. I might as well be storing my money in a baked bean can under my bed. Let us know how you get on.
JayJuly 19, 2011 at 7:40 pmAuthor
Haha what is it with your family and baked bean cans??? :p
No I get what you mean – i’m exactly the same! Maybe we should both just go for the same stock – that way we can fail together!
smart moneyJuly 15, 2011 at 4:17 am
bingo…thought you’re bloggers from england. the last time i saw the phrase ‘sterling effort’ used was in a raunchy mills & boon novel based in London…
Harri @ TotallyMoneyJuly 18, 2011 at 3:56 pm
LOVE IT!!!
AshJuly 18, 2011 at 8:25 pm
Haha, very nice. So, ugh, what were you doing reading that anyway?
Darwin's MoneyJuly 17, 2011 at 4:06 am
I first started investing in a bull market, so I never developed fear early. I sat through the financial crash in 08-09 and held firm due to my believe in a long-term strategy (ignoring near-term volatility) and it paid off. But who knows, we could be back there in no time, especially if the EU disintegrates or the US doesn’t extend the debt ceiling.
Sunday Reads: It’s Getting Close EditionJuly 17, 2011 at 10:47 am
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