Wednesday, 18 February 2009

Mismanaged but not wasted (part 1 of 2)

"You have to pay your dues," is what my friend Fred Sykes replies when someone asks him for stock market advice. I know Fred well enough to be able to testify that, when it comes to dues, he has indeed paid his.

Like many others, Fred lost a great part of his investments in the June 2002 market crash. That's when share prices of internet companies collapsed, sinking the rest of the market and keeping it down during the following twelve months.

"For me, the whole mess was a blessing," Fred smiles when he tells me the story for the hundredth time. He knows that I am going to listen attentively to his words, since I belong to those who never get tired of receiving uncomfortable, but invaluable advice.

Why do I love to hear Fred's story? Because he is one of the few persons I know who is going through the 2008-2009 financial crisis without a scratch.
What, I must add regretfully, is not my case.

"I was living in an illusion," recounts Fred. "The 2002 stock market crash woke me up. It made me ask myself hard questions about my investment style and objectives."

He tells me that, for him, the most difficult was to admit that many of his cherished ideas about investment were radically false. "I was a great believer in value theories and I was wrong," Fred summarizes.

Thanks to Fred, I have
come to realize myself that most of my ideas about investment are fairy tales, although pervasive ones. Who could blame me for believing official truths daily propagated by financial institutions and the media?

"I used to spend lots of time selecting stocks that I intended to keep for the long term," confesses Fred, shaking his head. "I was well aware that market corrections and crashes take place from time to time, but I had learned to see them as inevitable."

After losing 60% of his liquid assets in 2002, Fred threw away his previous theories. Pain had pushed him to change.

He was determined to reshape his investment practices and take control of his life. He promised himself that, whatever happened in the future, he would not be paralysed again, he would not be playing sitting duck any more.

"I learned to look at facts with an open mind," Fred explains. "The change of mentality was not easy, since I had been brainwashed to ignore the contradictions in my thinking."

Fred's explanations illustrate how hard was for him to change his mind. "It took me several weeks of thorough self-examination to reach the conclusion that my achieving long-term investment growth had nothing to do with how long I kept stocks in my portfolio."

To be continued.

[Text: http://johnvespasian.blogspot.com]

[Image by The Pug Father under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]

Mismanaged but not wasted (part 1 of 2)

"You have to pay your dues," is what my friend Fred Sykes replies when someone asks him for stock market advice. I know Fred well enough to be able to testify that, when it comes to dues, he has indeed paid his.

Like many others, Fred lost a great part of his investments in the June 2002 market crash. That's when share prices of internet companies collapsed, sinking the rest of the market and keeping it down during the following twelve months.

"For me, the whole mess was a blessing," Fred smiles when he tells me the story for the hundredth time. He knows that I am going to listen attentively to his words, since I belong to those who never get tired of receiving uncomfortable, but invaluable advice.

Why do I love to hear Fred's story? Because he is one of the few persons I know who is going through the 2008-2009 financial crisis without a scratch.
What, I must add regretfully, is not my case.

"I was living in an illusion," recounts Fred. "The 2002 stock market crash woke me up. It made me ask myself hard questions about my investment style and objectives."

He tells me that, for him, the most difficult was to admit that many of his cherished ideas about investment were radically false. "I was a great believer in value theories and I was wrong," Fred summarizes.

Thanks to Fred, I have
come to realize myself that most of my ideas about investment are fairy tales, although pervasive ones. Who could blame me for believing official truths daily propagated by financial institutions and the media?

"I used to spend lots of time selecting stocks that I intended to keep for the long term," confesses Fred, shaking his head. "I was well aware that market corrections and crashes take place from time to time, but I had learned to see them as inevitable."

After losing 60% of his liquid assets in 2002, Fred threw away his previous theories. Pain had pushed him to change.

He was determined to reshape his investment practices and take control of his life. He promised himself that, whatever happened in the future, he would not be paralysed again, he would not be playing sitting duck any more.

"I learned to look at facts with an open mind," Fred explains. "The change of mentality was not easy, since I had been brainwashed to ignore the contradictions in my thinking."

Fred's explanations illustrate how hard was for him to change his mind. "It took me several weeks of thorough self-examination to reach the conclusion that my achieving long-term investment growth had nothing to do with how long I kept stocks in my portfolio."

To be continued.

[Text: http://johnvespasian.blogspot.com]

[Image by The Pug Father under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]