Understanding your attitude to risk and learning from mistakes

Bobziz

Interested to hear from those with longer term investing experience about how your tolerance to risk has changed in response to major market corrections/crashes. Clearly there are many elements that contribute to the level of risk that you're comfortable with, including age, income level, investment goals etc, but emotion also seems to play a major part. Have you responded emotionally in the way that you thought you would and how have your experiences changed your approach ? What lessons can newbies learn from your 'mistakes' ?

I've not yet experienced a significant market correction. However, my first year of investing has shown me that my tolerance of risk is not as high as I thought it was. It has also demonstrated that my emotional responses are not always logical i.e. saying that you can afford to lose what you are investing and being emotionally able to tolerate such a loss are two different things.

As for lessons learnt, thankfully I've made no major mistakes that I'm aware of yet, but I have learnt that I'm more inclined to be unwisely impulsive in the morning, so should leave investment decsions until later in the day, or better still, a few days/weeks/months later.

Many thanks, Bobziz.

MaxiRobriguez

Lessons learned: 
1) Stick to your guns, even if you're a value investor. Your time will come. The more it looks like a lost cause, the better time it is to be overweight in that thing, whatever it is.
2) Don't try and call the bottom of the market. If you're in a correction or bear market and you're a long term investor then just go ahead and crack on rather than wait for that extra -10% to come off prices.
3) Bear markets are to be welcomed, not shied away from. Think of them as an opportunity to not pay full price.
4) Early years is all about the contributions not the asset selections. Focus more on what you can do to improve contributions whether that's reducing expenditure, moving money into pension for tax breaks etc.
5) Always remember there's more to learn.

Good luck

tebbins

MaxiRobriguez said:

Lessons learned: 
1) Stick to your guns, even if you're a value investor. Your time will come. The more it looks like a lost cause, the better time it is to be overweight in that thing, whatever it is.
Except that things can always, always get worse and some things don't come back.
2) Don't try and call the bottom of the market. If you're in a correction or bear market and you're a long term investor then just go ahead and crack on rather than wait for that extra -10% to come off prices.
3) Bear markets are to be welcomed, not shied away from. Think of them as an opportunity to not pay full price.
4) Early years is all about the contributions not the asset selections. Focus more on what you can do to improve contributions whether that's reducing expenditure, moving money into pension for tax breaks etc.
5) Always remember there's more to learn.

Good luck

Had to point it out since it seems a wee contradictory with 2 & 3.

Prism

If you build a portfolio well you might never experience the full effects of a crash. For example the multi asset fund I was invested in during the financial crisis didn't drop that much and I barely noticed last years short downturn. I have never experienced a 10 year downturn with high inflation and rising interest rates so that will be my true test I guess (one that I hope not to see).

MaxiRobriguez

tebbins said:

MaxiRobriguez said:

Lessons learned: 
1) Stick to your guns, even if you're a value investor. Your time will come. The more it looks like a lost cause, the better time it is to be overweight in that thing, whatever it is.
Except that things can always, always get worse and some things don't come back.
2) Don't try and call the bottom of the market. If you're in a correction or bear market and you're a long term investor then just go ahead and crack on rather than wait for that extra -10% to come off prices.
3) Bear markets are to be welcomed, not shied away from. Think of them as an opportunity to not pay full price.
4) Early years is all about the contributions not the asset selections. Focus more on what you can do to improve contributions whether that's reducing expenditure, moving money into pension for tax breaks etc.
5) Always remember there's more to learn.

Good luck

Had to point it out since it seems a wee contradictory with 2 & 3.

How so?

Billycock

MaxiRobriguez said:

Lessons learned: 
1) Stick to your guns, even if you're a value investor. Your time will come. The more it looks like a lost cause, the better time it is to be overweight in that thing, whatever it is.
2) Don't try and call the bottom of the market. If you're in a correction or bear market and you're a long term investor then just go ahead and crack on rather than wait for that extra -10% to come off prices.
3) Bear markets are to be welcomed, not shied away from. Think of them as an opportunity to not pay full price.
4) Early years is all about the contributions not the asset selections. Focus more on what you can do to improve contributions whether that's reducing expenditure, moving money into pension for tax breaks etc.
5) Always remember there's more to learn.

Good luck

A pointless point for those who's ISA's are maxed.

eskbanker

Billycock said:

MaxiRobriguez said:

Lessons learned: 
1) Stick to your guns, even if you're a value investor. Your time will come. The more it looks like a lost cause, the better time it is to be overweight in that thing, whatever it is.
2) Don't try and call the bottom of the market. If you're in a correction or bear market and you're a long term investor then just go ahead and crack on rather than wait for that extra -10% to come off prices.
3) Bear markets are to be welcomed, not shied away from. Think of them as an opportunity to not pay full price.
4) Early years is all about the contributions not the asset selections. Focus more on what you can do to improve contributions whether that's reducing expenditure, moving money into pension for tax breaks etc.
5) Always remember there's more to learn.

Good luck

A pointless point for those who's ISA's are maxed.

Why?  Buying within a SIPP may be applicable, or even if there's no headroom within tax wrappers, buying outside these may still be worth it, depending on circumstances, even if just as a temporary staging post until getting investments wrapped later on....

Billycock

eskbanker said:

Billycock said:

MaxiRobriguez said:

Lessons learned: 
1) Stick to your guns, even if you're a value investor. Your time will come. The more it looks like a lost cause, the better time it is to be overweight in that thing, whatever it is.
2) Don't try and call the bottom of the market. If you're in a correction or bear market and you're a long term investor then just go ahead and crack on rather than wait for that extra -10% to come off prices.
3) Bear markets are to be welcomed, not shied away from. Think of them as an opportunity to not pay full price.
4) Early years is all about the contributions not the asset selections. Focus more on what you can do to improve contributions whether that's reducing expenditure, moving money into pension for tax breaks etc.
5) Always remember there's more to learn.

Good luck

A pointless point for those who's ISA's are maxed.

Why?  Buying within a SIPP may be applicable, or even if there's no headroom within tax wrappers, buying outside these may still be worth it, depending on circumstances, even if just as a temporary staging post until getting investments wrapped later on....

Thanks, a good point and something that hadn't crossed my mind. My option would have be to hold within a GIA and transfer into ISA when the allowance is available.

Bobziz

Thanks for the responses so far, much appreciated. I wonder whether we can agree that if you're going to comment on the lessons that others have learnt that you also share your own lessons. Easy to point the finger, not always as easy to look in the mirror.

Thrugelmir

Bobziz said:

What lessons can newbies learn from your 'mistakes' ?

 Learn from the mistakes you do make. Don't repeat them. As that's something you have control over. Market corrections you don't. More often or not they do expose the weaknesses in your thinking/planning and as a consequence the construction of your portfolio.  Good investment returns don't always require unneccesary risk taking.  Just a fair amount of patience. 

dunstonh

Try and avoid mistakes to begin with by getting it right first time.

If you are fully aware and understand the volatility of your investments then a crash should not surprise you as your loss will be within your tolerance.   

A lot of new non-advised investors do have a habit of investing above their risk profile and panicking at the first minor drop.  So, there is some room to improve there.