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One of my early investments was a complete loss.
I know that doesn’t make for ego-pleasing conversation from someone who’s meant to be an investment expert, but it’s the truth.
Also by Michael Yardney:
However, I’m keen to tell you the story of how I lost 100 per cent of my invested capital many years ago, way back in the 1970s, and the investment mistakes I made that created this disastrous result.
But first, I want to explain the two main reasons I’m sharing this story.
1. Losing investments can be great teachers
Sure, you could learn from the investment mistakes you make, but why not learn from other people’s investment errors so you don’t have to make the same mistakes yourself.
You see, most investors pay the market a huge learning fee in the way of mistakes.
Studies show around 50 per cent of investors who buy an investment property sell up in the first five years. Clearly, they’ve done something wrong.
And most investors who stay in the game don’t make it past their first or second property, so obviously they’re not doing things right.
So, why not learn how to avoid their mistakes?
2. Losses are a natural and normal result of making investment decisions
Don’t be so hard on yourself when things don’t go as planned.
One of the keys to your long-term success will be what you do when things go wrong and the lessons you learn from your mistakes, so you don’t repeat them.
The problem is many investors just seem to keep repeating the same bad investment behaviours.
My big investment mistake
Go ahead and laugh at my foolishness. Yes, I should have known better.
I already owned a few investment properties at the time, but I was in a hurry to get rich quick.
Interestingly, this story is good evidence that I wasn’t born a great investor.
Investing is a learned skill, and I hope the lessons contained in this story will help you avoid the mistakes I made.
I was offered the opportunity to invest in a gold mine.
In fact, one of my friends, Brian, had invested the vast sum of $5,000 (remember it was the 1970s and that was a lot of money) into a venture that was resurrecting an old disused gold mine in Wedderburn, near Ballarat in Victoria.
Of course, my initial reaction was to tell him how silly he was. How he’d lose his money.
But Brian asked me to speak with the promoter, explaining that he had a compelling story.
So I did. I still remember it well.
One Sunday morning, a man called Terry came to our home and described how, with the price of gold rising and using new technology, it was now viable to reopen an old disused gold mine where the Gold Rush occurred in the 1800s.
He had budgets and profit projections, diagrams and plans; but things changed completely when he took a shiny nugget of gold out of his pocket and placed it in my hand.
I’d never seen a nugget of gold before. I’d never held a nugget of gold in my hand.
He told a story of how I could double my money quickly investing in his company – The Asian Pacific Mining Corporation (what an impressive name) – and how I’d receive dividends for years.
My greed glands began working overtime as I swallowed his story – hook, line and sinker.
The result was I invested $5,000 of my money and, of course, I lost it all.
Just to put things into perspective, in those days a family car (the Holden Kingswood) cost around $2,000, so $5,000 was a lot of money.
What happened was that my money and that of all the other investors was squandered by Terry into frivolous start-up costs meaning there was none left to invest in the mine.
My investment decision was one big mistake from the beginning.
Some more obvious mistakes I made with this investment:
I gave my money to a virtual stranger without doing enough due diligence. Sure, Brian and a few other friends had already invested with him, but I didn’t look into the “opportunity” enough. Of course, it was much harder to do that in those days as there was no internet.
I invested in something I didn’t understand
I bought a story rather than investment fundamentals
I was lured by the opportunity of making quick and easy money
In reality, I was speculating, not investing and risked money I couldn’t afford to lose
I had no investment strategy – just a desire to get rich quick
I learned many lessons from this experience, including:
Not everything that glitters is gold
Sometimes your best investments are the ones you don’t make
Don’t invest in anything you don’t fully understand. I knew nothing about gold mining, so I was really speculating. I had no competitive advantage and there was no mathematical expectation to my investment strategy.
One of the worst things that can happen to an investor is to get it right first time. I thought I was clever, when, in reality, my investment success so far was in large part to a rising property market – a boom that made me look smarter than I was.
Don’t become overconfident, the market will soon humble you
I didn’t understand the incentives of the so-called ‘adviser’, who really had a vested interest, which created biases in the recommendations he gave me.
I could add even more mistakes to this list, but I think you get the point.
Looking back, one other mistake I should mention that occurred after the event was blaming outside factors for my investment failure, rather than evaluating what really happened and owning up to my failure.
This mistake was a big blow to my ego
I had to explain my loss to my then wife. Boy, was that embarrassing.
But it provided me with an opportunity to learn some great lessons.
My question for you is: how many of the above investment mistakes are you making?
How much are mistakes like this costing you?
One of the key factors to my investment success is that I always try to learn from my mistakes.
In my early years of investing I tried to constantly improve my investment skills by studying each loss or examining an investment that didn’t perform as well as it should have, to understand what went wrong with my strategy, and then I set up disciplines to ensure I didn’t make the same mistake again.
This led me to devising my now-proven, time-tested, investment strategies that take the emotion out of my investing.
My worst investment mistake was a cheap lesson
This investment was the first of many learning fees I’ve paid to the market over the years.
I’ve made a lot of mistakes and paid a lot of learning fees during my journey to investment success.
It’s much easier for investors nowadays. You don’t need to do it on your own.
There are plenty of good, independent, property strategists out there to help you, but that wasn’t the case when I started investing.
Unfortunately, there are still as many sharks out there too.
Maybe they don’t have the unethical intentions Terry had, but they have vested interests.
They represent builders and developers but are disguising themselves as advisers or buyers’ agents, when they’re really representing someone else and not you.
What about you?
What can you learn from my story?
Are you making any of these mistakes, are you using any of these excuses to dismiss your investment losses as not reflecting a fundamental flaw in your strategy?
As I said at the beginning of this article, every investor makes mistakes. They’re a normal part of the investment journey.
Nobody starts out as a great investor. Property investing is a learned skill.
Few people have made more mistakes in their investment journey than I did. In fact, I’ve often said I’m a real success at failure.
Yet, I’m a successful investor today, and it’s largely because I’ve learned from my mistakes.
I hope you’ve also learned something from my mistake.