Beleggen is de afgelopen jaren voor veel van onze klanten een ideale manier geweest voor het opbouwen van pensioen, een tweede inkomen, een mooi geldpotje voor de kinderen of simpelweg een hoger rendement te krijgen op hun spaargeld ten opzichte van de bank.
Als je op dit moment nog geen of weinig ervaring hebt met beleggen, vraag je je misschien af hoe dit precies werkt en welke risico’s hieraan verbonden zijn.
We willen graag een praktijkvoorbeeld met je delen over een investeerder die zijn vermogen wilde uitbreiden met investeren in aandelen. Steve bleek de slechtste investeerder ooit, investeerde steeds op de verkeerde momenten en verloor op die manier steeds veel van zijn geïnvesteerde vermogen. Toch was na jarenlang investeren het resultaat (heel) positief. In dit artikel van Marcus de Maria lees je hoe hij dat deed:
The Story of Steve, the Worst Stock Market Timer in History!
I recently read an article by a chap called Ben Carlson, which I found fascinating. Not only because of this man and his story, but the learnings that come from his unhappy timing of the market. I have adapted the story for the purposes of this article.
It was about a man, called Steve, who just wasn’t very good at timing the market. Actually that’s an understatement. You need to see this to believe it. It’s almost as if this man literally had the OPPOSITE of the Midas touch – he just invested right at the top of every market, terrible timing. Steve was literally the worst stock market timer in history. What I am about to reveal is a sequence of dreadful timing of his stock purchases.
Steve started a job in 1970 aged 22. He was a diligent saver, a trait he inherited from one or both of his parents, which is quite young compared to most people, so he must have been quite switched on at the time. Most importantly Steve had a plan (so he thought).
His plan was to save £2,000 a year during the 1970s and bump that amount up by £2,000 every 10 years until he could retire at age 65 by the end of 2013. What does this look like? £4,000 a year, every year in the 80s, £6,000 a year in the 90s then £8,000 a year until he retired. He started out by saving the £2,000 a year in his bank account until he had £6,000 in his bank account by the end of 1972 i.e. after 3 years.
He had heard that good money was to be made in the American stock market. He didn’t know much about it, so he decided he would keep things simple. He would invest for the long term. Steve’s problem was that he only had the courage to put his money to work in the market after a huge run up i.e. after he could see that the market had been going up for a while. Only then would he dare get in, which he did. At the end of 1972, he put his entire savings of £6,000 into an S&P 500 index fund.
To his dismay, within a short period, the market dropped nearly 50% in 1973-74. Steve had put his entire savings in at the peak of the market right before a crash. Steve stood by and watched his savings get cut in half. He didn’t know what to do and was paralyzed with fear. Steve didn’t want to sell because he would lose too much money. Investing at the top was a bad decision – he didn’t want to make another bad decision and sell at the bottom. So he decided to wait. In fact, this was one of Steve’s traits – you could say it was his saving grace. Once he was in the market, he never sold his fund shares.
Now as you can imagine, Steve felt insecure about his decision to make money in stocks. Was this really for him? So Steve didn’t feel comfortable about investing again until August of 1987 after another huge bull market. He was so insecure about his own abilities that he had waited 15 years before deciding to go back into the market. In that time, he had saved £46,000 which he wanted to put to work. Hopefully this time it wouldn’t be like last time. The market had been going up strongly. Again he put it in an S&P 500 index fund.
You will not believe it when I tell you that he invested at the market peak just before Black Monday of 1987. The stock market crashed 30% literally overnight right after Steve had bought his shares. He couldn’t believe it. How unlucky could one man be? Scared to get out at the wrong time (his confidence was at an all-time low), Steve decided not to sell and kept his money invested. He was like a deer in the headlights, unable to react and get out. So he stayed in, as he had done before.
After this event, Steve’s attitude towards the Stock Market changed. He couldn’t see how people were able to make money and he certainly didn’t feel right about putting his future savings back into Stocks. Years passed until mid-1990s when there was an insanely rampant Bull market. Stocks were almost doubling every few months. Everybody was talking about it. By the end of 1999 it seemed impossible not to make money so Steve took a deep breath and invested the entire £68,000 of savings he had amassed since the last time he invested. Surely it had to work this time?!
Would you believe it? This time his purchase at the end of December 1999 was just before a 50%+ downturn that lasted until 2002. That’s right – Steve had invested his life savings into the tech bubble and it burst on him literally overnight. Talk about the worst market timing in the history of humanity. Vowing never to invest again, Steve decided to save as hard as he could every year. He was badly scarred by these events. Whenever anyone talked to him about stocks he would almost have a panic attach.
That’s why it is so surprising to hear that Steve decided to make one more big purchase with his savings before he retired. The final investment was made in October of 2007 when he invested £64,000 which he had been saving since 2000. The stock market had been rising since 2003 and by 2007 he felt that it was safe to go back in. It was as if this man would never learn from his mistakes. Well, you have probably guessed it – Steve rounded out his string of horrific market timing calls by buying right before another 50%+ crash from the credit blow-up.
After the financial crisis he decided to only continue to save and he never went back into the market again. So instead of investing his money, he kept it in the bank with almost zero return, amassing another £40,000 in cash. Steve retired in 2013 according to his plan.
But what about his investments?
What happened to them?
Go on, take a guess.
Remember that when you lose 50% of your investments, you need 100% growth to just break even. Most people don’t realise that. Losing money is NOT a good thing to do and Steve had done this several times. He really was the world’s worst market timer, with his only stock market purchases being made at the market peaks just before extreme losses.
Do you want to know what happened to his savings, that he had spent a lifetime working for?
Let me tell you.
Remember that Steve never sold his shares. Not even once.
He didn’t sell after the bear market of 1973-74 or the Black Monday in 1987 or the technology bust in 2000 or the financial crisis of 2007-09.
He never sold a single share, his one saving grace.
Even though he only ever bought at the worst time ever, at the very top of the market, Steve still ended up a millionaire with £1.1 million.
How could that be you might ask?
First of all Steve was a diligent saver and planned out his savings in advance. He continuously saved every year and increased the amount he saved every ten years, according to his plan.
Second, he allowed his investments to compound through the decades by never selling out of the market over his 40+ years of investing.
Thirdly, if he ever received any dividends, he would re-invest them.
Finally, he had a very simple and low cost investment plan — one index fund with minimal costs.
Obviously, this story was for illustrative purposes and I wouldn’t recommend a portfolio consisting of 100% in stocks of a single market like the S&P 500 unless you have an extremely high risk tolerance. And if you did want to do what Steve did it makes more sense to have a balanced portfolio in different global markets with a sound rebalancing policy.
So what can you learn from this story?
When I discussed it with my team, they came up with the following:
- Make sure investing in the long term is part of your financial strategy.
- Saving your money so that you have money to invest is the basis of wealth. Too many people spend their money and don’t put anything away for a rainy day.
- Actually taking action and investing is essential. Too many people save but don’t invest.
- Time is the great friend of compound growth. The earlier you start the better.
- Keep adding to the pot – the more you have the more you will make.
- Don’t be perfect – just take action and you will wake up one day a very happy person.
What did YOU learn?
Please note: If he would have used well known long term investing strategies, like our PCA and especially VCA, Steve would have been up by over £2 million.
Uit dit verhaal blijkt dat investeren zonder de juiste kennis soms toch goed kan komen (als je voldoende tijd hebt). Als Steve had geweten welke strategieën hij had moeten volgen, dan was het resultaat nog veel beter geweest. Wil jij kennis maken met 3 bewezen beleggingsstrategieën? No.1 Wealth Coach Marcus de Maria geeft op 6 juni een webinar over winstgevend beleggen. Tijdens het webinar ontdek je hoe je op een veilige manier vermogen kunt opbouwen en keer op keer goede rendementen kunt behalen. Je kunt dit webinar kosteloos volgen. Klik op onderstaande link voor meer informatie.