Understanding your attitude to risk and learning from mistakes

thegentleway

Apart from paying into pension since starting work, I'm new to investing so what I've learned so far is that I should have invested sooner!

Prism said:

Bobziz said:

Alexland said:

So the best thing to do when you start investing is to be fairly adventurous on the understanding that good investments will likely work out fine in the long run.

This would absolutely appear to be the logical thing to do, depending on how long your investment journey might be. However,  I wonder whether there's also a physiological barrier at play early on in terms of not wanting to see any significant loss to your initial investment, especially for those starting with a lump sum. Once gains enable a significant fall to be experienced without a paper loss of original capital, then it perhaps becomes easier to be more adventurous. 

I do think people underestimate how scary lump sum investing can be. The only time I have encountered it is when I did a cash SIPP transfer and my entire 20 year pension was sat in cash for one day. Clicking the buttons to follow my plan and reinvest was surprisingly hard even though a couple of days earlier I was fully invested. I can't imagine how hard it is after a large DB pension transfer.

Tell me about it; I invested all my savings in one go last summer. Not easy.

It's interesting that it still felt hard to go from fully invested to fully invested. Is it because there is that in between step where it's in cash? Or just because it's a large sum of money?

sevenhills

Bobziz said:

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.

You seem to be only thinking of the whole market. Companies can go bust too. I have had shares in Interserve and NMC Health care, both went into liquidation.

I have had shares in National Express which only recovered to my original purchase share price after around a decade.

I have bought numerous shares that have made 20/30% profit, so my attitude to risk is that the stock market increases over time, if I buy 50+ shares in my lifetime, I will probably be in profit.

Bobziz

sevenhills said:

Bobziz said:

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.

You seem to be only thinking of the whole market. Companies can go bust too. I have had shares in Interserve and NMC Health care, both went into liquidation.

I have had shares in National Express which only recovered to my original purchase share price after around a decade.

I have bought numerous shares that have made 20/30% profit, so my attitude to risk is that the stock market increases over time, if I buy 50+ shares in my lifetime, I will probably be in profit.

I had a play with buying individual companies many years ago. The lesson I learnt was not to buy individual companies unless you have the time, inclination and ability to do proper due diligence. I don't have any of those things in sufficient quantities so stick to index trackers and a few active funds.

sevenhills

Bobziz said:

I had a play with buying individual companies many years ago. The lesson I learnt was not to buy individual companies unless you have the time, inclination and ability to do proper due diligence. I don't have any of those things in sufficient quantities so stick to index trackers and a few active funds.

My point was that you cannot predict which companies will go into liquidation. Both of these companies had "accounting issues" and the investigations into KPMG are still ongoing.

Diplodicus

I don't understand the aversion to holding individual shares. Funds to me seem far more complicated, opaque and risky. Look at Woodford. Equities are the brickwork of investment and direct investors have more agency than by proxy investment through a fund (that's a good thing).

It's really not rocket science. Nobody gets everything right. Don't expect all your stocks to be winners all the time and you'll be fine.

csgohan4

Diplodicus said:

I don't understand the aversion to holding individual shares. Funds to me seem far more complicated, opaque and risky. Look at Woodford. Equities are the brickwork of investment and direct investors have more agency than by proxy investment through a fund (that's a good thing).

It's really not rocket science. Nobody gets everything right. Don't expect all your stocks to be winners all the time and you'll be fine.

Passive index trackers and Woodford equities funds are worlds apart, I hope you realize this. The former is only to track an index while the latter is to make money using high risk strategies

Sure you could argue there are 'safer shares' and then there are risker shares, say Amazon vs Tesla/NIO

But the bottom line is a good passive index tracker does not have it's finger in just one pie but alot of pieces to mitigate some risk 

Whereas if you went all in company x and it folded, your in trouble. 

however alot will depend on your own risk appetite

Billycock

csgohan4 said:

Diplodicus said:

I don't understand the aversion to holding individual shares. Funds to me seem far more complicated, opaque and risky. Look at Woodford. Equities are the brickwork of investment and direct investors have more agency than by proxy investment through a fund (that's a good thing).

It's really not rocket science. Nobody gets everything right. Don't expect all your stocks to be winners all the time and you'll be fine.

Passive index trackers and Woodford equities funds are worlds apart, I hope you realize this. The former is only to track an index while the latter is to make money using high risk strategies

Sure you could argue there are 'safer shares' and then there are risker shares, say Amazon vs Tesla/NIO

But the bottom line is a good passive index tracker does not have it's finger in just one pie but alot of pieces to mitigate some risk 

Whereas if you went all in company x and it folded, your in trouble. 

however alot will depend on your own risk appetite

Do you prefer meat pies or potato pieces?

Diplodicus

Those comments are quite sensible, csgohan4, but I should like to come back on a couple of them:

Many if not the majority of the 1/4 million invested in Woodford thought they were in a stolid defensive fund invested in tobacco giants and stuff like that. Partly the legacy of Invesco Perpetual High Income Fund and, of course, Hargreaves Lansdown promoted Woodford to the end. 

There is always a chance of a company going to the wall but it's worth bearing in mind that the biggest are many times the magnitude of most popular funds - for example Amazon is 140 times the size of the Vanguard60 fund. Imo the danger of losing one's whole investment in a stock is overplayed somewhat. 

Prism

Diplodicus said:

Those comments are quite sensible, csgohan4, but I should like to come back on a couple of them:

Many if not the majority of the 1/4 million invested in Woodford thought they were in a stolid defensive fund invested in tobacco giants and stuff like that. Partly the legacy of Invesco Perpetual High Income Fund and, of course, Hargreaves Lansdown promoted Woodford to the end. 

 

It is true that many likely believed that but anyone who put the slightest bit of effort in could see that it wasn't safe at all. Woodfords fund is not a good example of a solid fund.

sevenhills

Prism said:

It is true that many likely believed that but anyone who put the slightest bit of effort in could see that it wasn't safe at all. Woodfords fund is not a good example of a solid fund.

Are there any funds that investors should avoid now?