My Biggest Investment Mistake By A Country Mile.
I am incredibly sad when it comes to investing and saving money.
No I mean like really, really sad- it’s probably an issue that I should see someone about.
In fact, on the morning of my 18th birthday, when most people here in the UK would rush out to buy their first legal drink, I fired up my computer to open a stocks and shares ISA with Hargreaves Lansdown.
Even my mother, who had listened to me drone on about share prices and P/E multiples since the age of 11, was surprised by my enthusiasm for wanting to get into the market as quickly as possible.
That was just over 7 years ago now, so I thought I’d reflect on how my portfolio has performed over that time, and more importantly, think about what I’ve done wrong and what I have learned.
Like most 18 year old's, I didn’t have much money to invest, and I had even less knowledge in my brain than cash in the bank.
I did however love reading about stocks, mostly on sites like Seeking Alpha and The Motley Fool, but although that certainly sparked my interest, it didn’t do much for my portfolio.
I’d read a few articles about a mid-cap company like Pioneer Natural Resources, North American Palladium or Magellan Midstream Partners and would immediately think about buying shares.
Did I do all my homework? No
Did I listen to the conference calls? No.
Did I read about the potential headwinds? No, not really.
I’d just take one person’s word for it and then I’d buy some shares.
Now we come to the next problem- money.
I was, and still am, a firm believer in buying to hold, so patience wasn’t the issue, it was the level of investment that I could make in the first place that was the problem.
Often I would buy £100 or £150 worth of shares, partly because I’d always read that diversification was best, and mostly because I had become somewhat addicted to the process of researching a stock and buying shares. However, once you’d considered a £12.50 commission plus a foreign exchange charge, and a further £12.50 commission to sell said shares when I decided the time was right, often my investment gains had been halved, or even worse, eradicated altogether, even if the company that I had chosen had actually beaten the market.
Picking individual stocks was getting me nowhere.
On the 30th of January 2015 (two weeks after my 18th birthday), the S&P 500 index closed just under 2,000 points at 1,994.99, and the 7 years that proceeded were turbulent to say the least.
We’ve had multiple debt ceiling issues, rising interest rates, at least three separate 15% or more sell offs since then; And not to mention a certain pandemic that you may recall.
Despite this however, and despite the poor performance so far this year, the S&P 500 index closed over 4,100 points on Friday, meaning that the market has comfortably doubled since I have been able to invest, and that’s not including dividends.
Now, after trawling through my portfolio for many hours (it really didn’t take that long), I have worked out how many of my individual stock investments have beaten the market when fees and dividends are all included.
I’ll just give you a second to have a guess as to how many of my stock picks you think have beaten the market.
Yes, you are correct- none of them. Not a single one.
My 93% gain in Apple comes close, but the yield of the S&P 500 is over twice that of Apple, so in reality it’s not as close as it looks on paper.
The Penny Drops
It was during one of the many lockdowns that the penny suddenly dropped in my head- you don’t need to beat the market.
With an average gain of around 7.5% over the last 100+ years, and with the ability now to invest in many S&P 500 ETF’s almost entirely commission free, why try to beat the market?
I now invest almost entirely in ETF’s, dividend paying stocks and REIT’s, I sleep much better and my portfolio performs so much better as well.
If you can’t beat them, join them.