Some of the many mistakes I’ve made in the last 17 years of investing

In recent weeks, I’ve been talking to my better half about some of the mistakes we’ve made individually and together over the last 17 years in investing.

Today I’m sharing them with you, in the hope that you won’t make as many errors as I have.

Property Investment

Here are just a few of the many dozens of errors we’ve made in the property market:

• bought a property sight unseen for 30% more than its last traded price – the reason was partly due to a lot of new supply coming online in the locality which stunted capital growth for a 4-5 years before reverting higher
• paid around $15,000 over what was then fair market value for a large apartment in Bondi, which was also on a fairly busy road (we had a $500,000 budget, so used exactly that amount – very lazy investing)
• bought a city townhouse in the 1990s that went to some dodgy-sounding sealed bids process – three times!
• bought an off-plan investment property in Sydney’s inner-west and had the valuation come in below purchase price (we had to make up the difference in cash) – naturally enough, the market immediately boomed by 30%+…
• many years ago, bought a luxury Sydney harbourside pad with painfully high strata fees – we’ve been sucking those up ever since – below average net yields can sometimes be the cost of what has been truly blistering capital growth
• bought an investment property without understanding the trust structure properly
• bought an investment property in London which was in a long ‘chain’, which took flippin’ ages to settle – and I mean, almost literally, ‘ages’
• lots and lots of other stuff.

And one thing we’ve done right?

Not sell a single property.

Even through the early 2000s tech stock bubble collapse, when people only wanted to talk about housing affordability and a bursting bubble – the London market and its surrounds continued to surge ahead.

Or through the global financial crisis, when the London market went up and Sydney’s market surged by more than 20% in 12 months.

Or in 2011/12 when pundits were talking about an inevitable Australian property market crash (the Sydney market rebounded from its trough by around 20% again), and so on…

Shares Investing

And here are some of the mistakes we’ve made in the share markets:

• not having a written investment plan when starting out
• buying shares in declining industries (e.g. Fairfax Media – FXJ)
• buying shares in expanding industries and companies and selling them too soon (Ramsay Healthcare – RHC, WebJet – WEB, lots of others)
• selling shares in a company (Corporate Express – CXP) a matter of only months before the Staples takeover – which was at a 25% premium
• speculating in ‘penny dreadfuls’ and companies which have made cumulative losses which don’t pay fully-franked dividends
• buying shares because the price had fallen without actually bothering to find out why
• forgetting that a poor company management will eventually be reflected by a poor share price
• buying far too many resources companies instead of industrials
• over-trading
• a whole heap of other stuff.

And one thing we’ve done right?

Set up a standing order and buy shares consistently every month for a decade-and-a-half regardless of the market or the media reporting.

Most average investors do a lot better when they have a long term plan and stick to it without watching the market gyrations daily.

Summary

In retrospect, it strikes me that, for us at least, investment returns have been almost spookily inversely proportional to how smart we thought we were being.

Where we’ve planned for the long-term and accepted that short-term market forces and outside of the controllables, we’ve been very successful and have created very substantial equity.

On the other hand, when we thought we were being clever, and tried to outsmart the market with delicate timing or niche market selections, at least as often as not, we got it wrong.

The net position would probably be as close to zero as makes no difference to life today, especially after trading costs.

That’s human nature, I think.

People think they are smart and call market tops and bottoms because charts comprise historic data and look very easy to read with the benefit of hindsight.

Everyone seems to be or claims to be an expert in the financial crisis in retrospect, but where were those people in 2007?

Not working in my office anyway – it was all about the bull market and Dow 40,000.

As for the property market crash predictions, they have been as useful as a chocolate teapot.

When I first came to Australia in 1999 financial advisers were beginning to talk very specifically about a property crash in their newspaper columns, and having painted themselves into a corner some have tried to cling grimly to their predictions for 15 long years.

It seems pretty obvious to me, that markets are far less predictable than people appear to believe, which is why a long-term outlook is so important.

It’s annoying in one sense looking back at all the errors of judgement we have made, but there is no point in begrudging any mistakes.

What’s done is done, and you can only learn to resolve from errors of judgement.

In any case, over the long term it is a thousand times better to have investing in something than not at all, since share indices and property markets have been extremely forgiving over time.

Shares and properties don’t care who owns them, they just are what they are.

It’s also only by having made and been personally responsible for all of those errors and mistakes that I have become a better investor and know with certainty that I won’t make any of them ever again.

Onwards and upwards…