Many of our clients and most of our fund partners are based in Europe – we help our African investors to access opportunities outside Africa and so to diversify their investment portfolios. Europe and America have definitely been harder hit by Covid-19 than Africa and whilst the investments that we promote have fared well in the financial storm, the last 12 months have therefore been challenging in terms of contact-ability and administration.
The UK, for example, has just entered its third lockdown; ninety percent of the financial community is working from home, and the banks are only open for three hours a day! During this period of endless, temporary, irritating, enjoyable, frustrating, life-affirming incarceration I have often had far too much time on my hands which is both brilliant and horrible! It does mean that I have been able to do a lot of thinking.
I was a horrible student but I now have a lust for learning which means I am eternally grateful to God for Google. This week I Googled “The seven deadly sins”. “Gluttony” – really?! They couldn’t think of anything worse than an extra helping of pudding? And then my over-active mind started thinking about how many of these “sins” are applicable to investment……..more than half. And so here, for the record, are my seven deadly investment sins – ways that guarantee a descent into financial hell!
GREED – a fairly obvious starter. If the investment promises an unbelievable, inexplicable profit and you still want to go ahead then your greed has overtaken your mind and you deserve your losses. Your brain is a better judge of viability than your heart. As a guideline anything that promises more than a 15% annual return for an investment of less than $150k is highly speculative.
PRIDE – too many of us (particularly the male of the species) hate to admit a mistake or that we don’t understand an investment. If you don’t understand it then don’t do it. If your advisors can’t explain it clearly and succinctly then find new advisors. Ignorance and pride keep us chasing losses in failing schemes or allows us to be bamboozled by conmen. Be humble!
FEAR – some of us allow our lives to be dictated by shapeless and unquantifiable fears. We keep doing what we have always done and keep getting what we have always got. In many cases this means that investors are receiving much less than they should be. Low returns with capital guarantees are only attractive if the investment is returning more than the rate of inflation. The reason that a recent government gilt issue in UK was oversubscribed by 150% wasn’t the 0.65% per annum it is paying! “We have nothing to fear but fear itself”. Be strong and courageous. And wise!
SLOTH – Most investors work very hard for their money – and then are very lazy about their investments. They just give the money to the bank or they trust some smooth-talker with no office. Madness! Research exhaustively, visit projects and offices, and always meet earlier investors. Great investment advisors always have clients that will vouch for them – work as hard investing the money as you did earning it.
ENVY – The reason that pyramid schemes and Ponzis work is envy. When you hear that the half-wit you knew in school who could barely spell is making 30% profit EVERY month from a brilliant new Crypto scheme (scam) it isn’t just greed that sends you to their offices with your life savings. Too many human beings feel jealousy before they feel joy at the good things that happen, or appear to happen, for others. Envy will drive you mad and/or bankrupt so be pleased for your halfwit friend – he will be able to afford to complete primary school now.
PREJUDICE – All of us have deep-seated prejudices and biases. Work hard not to apply them above intellect when you look at an investment. Some things we favour too much. For example, I have always liked property-backed investments but there are certain times in the economic cycle when they are very illiquid and fairly risky. I often have to rebalance my portfolio to reduce the property element. Conversely, I am also unreasonably sceptical about some asset classes. Traditionally, I have avoided mining investments and I have evaded lots of scams because of it – but I have also lost money by not properly researching some investments that have paid investors very well for a very long time. Be open-minded – except about crypto-currency for the foreseeable future unless you are comfortable with volatility and risk.
ARROGANCE – just because you have built a successful business, made some great investments, and have always made money in a certain area doesn’t mean that you are perfect. Pride comes before a fall. And things change – previously good companies go bad, successful sectors or technologies get replaced, and sometimes our good judgement isn’t in working order. Financial markets are cyclic and so what worked before will probably not work again until the cycle repeats. I am 52 years old but I recognise that “Every day is a school day” and I will never be too old to learn. Life has a way of showing you that just when you think you know it all is when you realise you didn’t know anywhere near enough!
I produced this list from both sweet and bitter experience! I hope it helps to make you profit and save you losses. One last piece of advice – “Don´t believe everything that you think”. It might sound illogical but much of what we accept as fact isn’t or isn’t any longer true. One of the unique things about humanity is that we keep learning till the day we die and we are never too old to un-learn bad habits. Happy investing to you – 2021 will be a year of great opportunity.
Jon Pedley is Chief Operating Officer, Investment Owl.
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