Chapter 1: "Mistakes acknowledged - Time to Rebuild" .. September Update Net Worth $75,211 - The Incompetent Investor

Monday, August 20, 2018

Chapter 1: "Mistakes acknowledged - Time to Rebuild" .. September Update Net Worth $75,211

"Financial Health is Empowerment"

Well, where to begin? I think we need to take a step back in time to provide some perspective and context on my investing story. It started at the age of 17. I loved the idea of growing 'wealthy' given I was relatively unmotivated in life and I saw investing as an easy way to generate passive income and relax by the beach in India. I heard about Warren Buffet at the time, and I was blown away by how he created wealth by buying shares in companies. My father, an educated man, with a master’s in accounting explained the benefits of starting young to allow the effects of compounding to take place. See https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator on how compounding interest works. Unfortunately, this 'lesson' stuck with me for a few weeks and I soon lost focus. Despite losing focus I was geared up and ready to take on the investing world. What did I do? I invested in rubbish companies with small market caps. Many of them don’t exist today. Only 1 survived. It was SBM.asx. The remainder went into administration and I was left with nothing. In hindsight, a simple ETF, or LIC would have done the trick and I would be laughing today. See https://www.asx.com.au/education/investor-update-newsletter/201503-etfs-versus-lics.htm for some examples of LIC's vs ETF's.

Along with the experience above, I continued trying to pick stocks. I invested in “REVOLUNTARY TECH INVESTOR REPORTS” which promised to give me huge returns. It was a fortune! What the hell was I thinking? From memory, and I won’t name the company as I believe it was a complete scam, it was $2000. I really can’t justify what I was thinking at that time to be so stupid. This is ultimately where the blog name inspiration came from. I will concede I was truly incompetent at a time. In fact, I think we all have an element of incompetence to our investment ability with the exception of the greats. After all, incompetence has fuelled the royal commission in Australia (2017-18 royal commission into the Australian banking and superannuation sectors). 

Perhaps not having a mentor over-looking didn’t help. Although, at the end of the day I am accountable for my own actions. In addition to this, I went on investing in other newsletters that picked stocks. Some did okay, some did horrible, some did worse than horrible. Once again, I would have been FAR better off keeping it simple and investing in ETF’s and LIC’s.  Fast forward 14 years and I don’t have much to show for it.  A combination of poor education, thinking I could outperform the market, greed and some additional compounding unforeseen circumstances did not help my plan to financial independence. In fact, it was quite the opposite. Mistake after mistake. The reality is, had I kept my strategy simple I would be in a powerful position today. Thankfully, I still have plenty of time, and we all have the potential to stop making poor decisions over and over. As the saying goes, the first time an idiot, the second time a duck, third time you are a reptile that can’t be saved. I am one of those individuals who is on his fourth strike, and I intend to make no more deliberate mistakes moving forward. 

What lessons have I learnt throughout my own personal investing career? 
·        I am not a boss investor. I will not be the next Warren Buffet and it is time to accept that fact.
  ·    By keeping it simple, there really is no need for additional newsletters that promise the world. Many come to mind where money could be better spent. I should point out there are some great ones but with a simple approach, they may not be necessary.  

·    Investing your money in small caps, micro caps or penny stocks is as good as throwing your money into the public toilets (I concede some people do great with penny stocks, but I do find that people are always happy to boast about their 400% gains and not their 500% losses). I consider penny stocks like a degree. If you can dedicate 3-4 years studying how penny stocks operate and how to filter through the junk on a full-time basis, perhaps you are ready to give it a crack. Until then, I have a personal rule I have established for myself which is to invest no more than 3-5% to small caps should I absolutely insist on doing so (no plans at this stage).

·         Do not buy the most expensive car to look like a ‘cool’ dude or gal in front of your mates. This is probably one of the biggest destructors of wealth. You may as well attach some 5KG weights to your ankle and try run an ultra-marathon. Just don’t do it. Buy a safe, cheap and reliable car to get you to work and back home. I personally like the 5% rule. Previously, I did not follow this rule, however, now I dedicate 5% of my total net worth to a car at any time a car upgrade is required. Should my net worth be 0, or negative, well I will ride my bicycle to work. I acknowledge this is not always possible if people live in the sticks. The fundamental message here is cars destroy your wealth, they are a depreciating assets. The only benefit I can think of is it may score you a couple handsome/pretty guys or girls depending on which side you bat in the short term. Once they realise you are in the red, I would bet they would be long gone before you can say “good thanks”.
          ·   Don’t pick individual stocks. I don’t have the aptitude nor the patience to sit through reading financial reports on individual companies I own. I would much prefer playing League of Legends then reading through company reports. Even if I had the aptitude and time, would I be even be outperforming the index? There is no guarantee. Therefore, instead of logging into my brokerage account and seeing one of my significant holdings taking a beating, I prefer investing in the index using ETF’s and LIC’s.
·  
          ·  Other Speculative Asset Classes: Cryptocurrency for example. I respect the underlying technology and I also respect people who are bullish on the industry. However, the sector has grown significantly, and late investors margin of safety has been reduced significantly. Personally, a lot of the coins I hear about don’t have much use cases. Obviously, there are some exceptions and the truth is I am not that educated on the sector. I have however been personally hit financially from cryptocurrency and I have learnt my lesson in regard to ‘greed’. In my opinion, should I ever invest in this asset class again which is unlikely, I would not allocate more than 2-5%. Crypto has been one of my three investing lessons which is, there is no quick way to become wealthy. No short cuts in other words. Slow and steady.


·    ·  Finally, pay off debt. I have friends whom I will not name (although I love) that have this perception that they can’t touch their savings to pay off debt. Instead, to buy a car, or a computer, or anything, they prefer to take out credit because psychologically they feel like their savings are going backwards when they take money from their saving account. The uncomfortable truth is debt is a major destruction of wealth. Credit Cards are ahead of the pack in this regard. In summary, I am a big advocate for reducing debt and getting those emergency accounts set up in case you need money to access for emergencies.
I realise a lot of these points above are subjective and some people love penny stocks, crypto, and picking personal stocks and so on. However, I am a living case study that it simply does not work… most of the time. There would be many case studies where individuals dominate picking stocks, and crypto.. and hey, maybe their might set up their own hedge fund or be the next Buffet…. but me… I accept I am not the most intelligent investor going around and therefore I will play to my strengths which is keeping it simple. I do not intend to take significant risks moving forward. There is no need.

The purpose of this blog is to show others throughout the world that there are people out there such as myself who have made mistakes financially but can turn their financial success around. I intend to document my progress and be as transparent as possible. The best comparison would be morphing from an overweight lazy investor to a smart focused investor. I have learnt there is no quick way to financial independence. We all have the ability to retire early however we need to remain down to earth and focused and accept our strengths and limitations.

FAMILY PORTFOLIO CURRENTLY - AUGUST
Net Worth $75,211
ANZ 
BKI - LIC
MLT - LIC
VDHG - ETF 

Stay tuned for my ongoing progress as each month passes ... 

Disclaimer: The information on this website is general information and should not be taken as financial advise. I am simply documenting my journey and experience. I am also not a licensed Financial Adviser. You should always seek independent legal, financial, taxation and other advise that relates to your unique circumstances. The Incompetent Investor is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.   

2 comments:

  1. Thanks for being so transparent about your situation. I’ve only started following you but it sound like you’re on a good path now.

    I’ve made my mistakes and messed up my net worth in the past and I’m only starting to rectify that now it’s nice seeing you achieve good gains

    ReplyDelete
    Replies
    1. G'day Andy,
      Apologies for the late response.
      It is my pleasure.

      Here is to us both rectifying previous errors and making sound ones!

      Delete