A Tale of a Near Miss
As featued in the February/March issue of the Winchester Resident magazine.
On Thursday, 5th March 2009 there was the usual poor mobile phone signal on the train to Waterloo, but financial adviser Martin Strutt heard enough of the call from his worried client and got off at Woking to call him back.
The banking crisis had been going on for over a year and Andrew had been a client for four years, with about £1 million invested in a low- medium risk portfolio with Collingbourne.
When Martin got back to Andrew the conversation went like this:
Andrew: “Martin, I’ve been watching the stock market this morning and I’m afraid I’ve had enough. I put a mental “floor” of 3,600 on the FTSE 100 index and it’s just gone below that, so I think I want to sell everything.”
Martin: “I understand. Lots of people feel like you do right now…...your portfolio is down about £100,000 since the start of the year, but everything is readily-realisable and if we sell, the cash would be in your bank early next week.
Andrew: “Thanks Martin, maybe when things calm down a bit I’ll feel differently”
Martin: “I think we’ll all be grateful if and when things calm down, but do you really think you’ll ever want to invest in equities again?”
Andrew: “Possibly, when things improve.”
Martin: “Hmm, so the FTSE 100 is about 3,600 today- what level do you think it might be when you feel comfortable about investing again?
Andrew: “Ah- I see. I’ll think it over. Let’s talk again when you get to Waterloo.”
Andrew realised that selling now and reinvesting at a higher price (when things had “settled down” later) would lock in his losses.
So, he decided to stay invested. It had to be his decision and Martin reminded him that his portfolio could fall even further.
Evolution has not equipped us well to be rational about money, and to a large extent, if we want to be happy, we should accept that.
Our emotions work against us when investing. Panic, fear, greed and elation over-ride the logical part of our brains. Our gut-instincts which serve us well in other aspects of our lives become a hindrance.
It is often the most engaged and otherwise successful who can struggle with this the most – Andrew was a highly accomplished engineer.
In the calms before and after storms, we need to protect ourselves by being in turn sceptical and open minded; testing ideas then building robust processes for when the going gets rough.
On March 6 2009 the FTSE bottomed out at 3,492. By the end of that year, Andrew’s portfolio was up by £250,000.
Today it is worth £1.9 million, despite Andrew having given £160,000 to his children.
*Name changed
Past performance is not a guide to the future and you should always seek suitably qualified advice.
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