Back again guys!
I hope everyone enjoyed my previous post – the one where I gave myself a good paper-cut and squeezed some lemon juice onto old memories just for your viewing pleasure.
There’s been a fair amount of messages about that episode, mainly around what I did next, what I learnt, what I’m wearing when I type out a post.
To be frank (Anne – come and find me, oh dear “shakes head”) I took that hit pretty hard.
I mean it wasn’t like I blinked twice slowly and then continued with whatever I was doing, it was a good 18 months or so before I could contemplate investing again and recovered my nest egg sufficiently to be in a position to do so.
Here are the CRUCIAL lessons I’ve learnt:
$40,000 can be earned back.
At the time, $40,000 represented the vast majority of my net wealth – to have it disappear was a crushing blow to self-confidence and your sense of worth, especially if you have grown up in austerity. For a long time afterwards, I’ve thought about what I can do with $40,000 – even now, wouldn’t $40,000 make a difference to your life?
Fact is though, I was fortunate in the sense that this occurred early in my income generating years. You can recover from a bottom line hit of $40,000 when you have the next 30 or 40 years of earning capacity to make up for it.
I saved and scrounged and was back to that mark just over a year later.
Learn to control your emotions.
In investing there’s a mantra which is don’t get emotional. Yep, got it – up, down, sideways – doesn’t matter, just don’t get emotional.
So easy to say when you’re not actually involved – “My shares tripled overnight!” Are you a noob? Don’t get emotional. “Oh shit, I lost $40,000” It’s OK, don’t get emotional. Fuck off don’t get emotional – only a machine or pulse-less being does not become emotional when it’s their money at stake.
The best traders, the best money managers, the best investors – they all get emotional, we are humans, we all have emotions.
True success is how you control your emotions to generate superior returns. Not “don’t get emotional” – it’s not possible with our
psyiology, pyhsiology, with our genetic makeup.
I did not learn to control my emotions, not when I was up $40,000, not when I was down $40,000.
Why didn’t you stop the train?
A few people have asked me, Hey, TheFrugalSamurai, why didn’t you just sell out when you were, you know, not down $40,000?
A very good question – it wasn’t like that $50,000 position (I had $50k invested in that sucker, lost it, but had $10k from other positions so net $40k loss) decided to play hide and seek one day and disappeared, it went something like this:
OH YEAH BABY – GOOD TIMES ROLLIN IN -> at this point I was flying (proverbially) and happy and life was good.
WHEW – LEMME TAKE A BREATHER -> of course, that’s fine – you’ve worked hard recently and you deserve a break or two.
OOPS – MISSED A STEP THERE, DON’T MIND ME -> hmm OK, you’ll still take me out to dinner Friday night right?
HA, HA – HAD TOO MUCH TO DRINK LAST NIGHT, I’M GOOD NOW -> of course you are, always believed in you.
UM – SO ABOUT LAST NIGHT -> …. yes?
NOTHING, NOTHING FALSE ALARM -> t…tell me.
SO I SLEPT WITH YOUR SISTER AND NOW WE ARE MARRIED -> WTF
The warnings were there of course, but being naive and inexperienced I had nothing to go off.
When the position was moving down slightly, I didn’t bother to check why.
When the position was moving down a lot, I left it there thinking it will come back.
When the position wasn’t even moving anymore, I thought, I’ve come this far – no point in selling out now.
It was only when the position wasn’t there anymore that reality hit me like a wave.
Money is just money.
I’m learning this lesson every day as I become older – when I lost that $40,000 wow did I feel shit. The world was a darker place, the birds and the bees weren’t as chirpy anymore and this spiralled into other dimensions of my life.
But you know what, money’s just numbers on a screen or pieces of paper. Of course its important and of course its what makes the world go round – but end of the day it’s only one facet of life. The world spins with or without you.
Do my family stop loving me because I lost money? Do my friends stop being my friends because I lost money? Does me dog stop being so excited to see me because I lost money?
Nah – life goes on, we all have setbacks in life. It’s about climbing out of the abyss and constantly learning from your mistakes.
It’s what you do next that counts.
So what did I do next? Follow this blog and find out!
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Bee and Gee
Loving the plot annd character development… reminds me of this jap bank robbery video i watched once…
Who hasn’t lost money in the share market before? Well except those who never had a share in their lives. I mean it wasn’t too long ago (OK, it was almost 20 years ago) that OneTel was supposed to be star on the rise? Remember Ansett? What about HIH?
I think you are not alone here FS. Sell high is easy, the hard part is cut your losses when you are in the red. It took me quite some time to realise that there is no point holding on, it’d be best just to take a loss, salvage what you can and reinvest the money elsewhere. And that lesson probably cost me in the vicinity of $10K. We’ve all been down that road before and I’d say it’s worth it if it changes your approach for the better.
Pearls of wisdom
“Know when to cut ur losses when in the red” – exact same theory can be applied in other areas of life
The Frugal Samurai
This is true – only with hindsight do you have 20/20 vision
The Frugal Samurai
Definitely worth it if it changes your approach for the better – but there’s a fine line between “cut your losses early” and “time in the market heals all wounds” – hard to really know what exactly to do at the time.
It’s difficult to get it spot on. Sometimes you just have to pay up the “tuition fees” and learn from it.