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Learning from our mistakes: Editor’s note

Lewis Jackson  |  24 Jun 2022Text size  Decrease  Increase  |  
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Good morning. I’m slowly settling into Bondi. One more trip to Ikea this weekend should see the job done. Markets also settled this week. Shares moved higher here around the world in a mercifully quiet week of rate decisions. Don’t get comfortable. Everyone is still terrified about rates and growth. Today we park markets for a personal story. As always, comments or questions to lewis.jackson@morningstar.com.

A comedy of errors

Selloffs serve many purposes: the profitless and profligate are disciplined, risk tolerances are recalibrated as fundamentals crush unsuspecting speculators. Bear markets are also learning experiences. Reflecting on my missteps during the pandemic honed my approach to investing. I hope they help you do the same. For the experienced, perhaps these are lessons to share with others.

It started on a crisp March morning in Barcelona in 2020. From my apartment balcony I could see a deserted stretch of the normally busy Via Laietana. On Twitter the end times had arrived. An Italian friend sent me a video of convoys of Russian military trucks ferrying medical supplies across the Covid-stricken country. Convinced by the doomsayers, I logged into my AustralianSuper account on 11 March and switched from “High Growth” to “Stable”—more than quintupling my holdings of cash and bonds.

I was not alone. The Reserve Bank estimates $26 billion was moved to cash across the superannuation industry in the March quarter of 2020 alone.

The subsequent recovery over April and May caught me (and everyone else) by surprise. When I switched my super back on 10 June, I had missed a rally of about 10%.

I compounded the errors in my personal trading account. In the depths of March, I held off—surely the bottom was a way off. When the ASX’s breakneck run stalled in early June, I readied my dry powder. When the rally resumed in November 2020, I finally jumped in, eight months late.

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Behavioural economists would call me irrational. I prefer to blame my monkey brain. Millennia swinging between trees ill prepared humans for investing. And I pride myself on my rationality: I write lists, I have a five-year plan, I spend long minutes in the dairy aisle comparing the milk content between butter brands. But reason wanes when the stock chart starts dancing.

The monkey brain costs more than just money. My share portfolio shadowed me. Bed, shower, train, it poked and prodded. My fingers would dance across the keyboard automatically: ctrl+t to open a new browser tab; hit the first letter in the name of my online broker; Google Chrome autofills; press enter.

The torment was the same whether markets went up or down. In March 2021, one of my funds jumped 7% in a month. I agonised over whether to buy more. When markets dipped, I lay awake wondering if it was buying time.

I suffered. So did my returns. My portfolio had become a pebble in my shoe. One I’d be stuck with for decades.

So, I sat down to sketch an approach to investing I could live with. Mark Lamonica calls it picking an investing philosophy. I prefer long-term returns without the heartburn.

What works for me is to treat my share portfolio like a pseudo superannuation account. I have an asset allocation suited to my goals and an investment to match (a passive multi-asset fund). I invest regularly and studiously ignore my portfolio at all other times. Neither sexy nor fun, I am sane and my portfolio safe.

Being a successful investor requires more than comparing 10-year return charts and picking the highest. You (and your portfolio) need to survive those 10 years. Here are some resources to help you figure out how:

More from Morningstar

Get caught up on what happened this week in the usual place. Morningstar attended Reserve Bank Governor Philip Lowe’s first public appearance in months so you didn’t have to.

After defying gravity for months, commodity prices are returning to earth. Morningstar’s Mathew Hodge reminds investors what’s unusual is how prices stayed high for so long. Speaking of falling prices, are markets cheap? One Morningstar metric says yes.

Those looking to put cash to work should take a second look at the local technology sector, where profitless companies are tarnishing reliable cash generators.

Finally, the Australian Superannuation Industry turns 30 next week. Ahead of the anniversary Graham Hand explores the growth of SMSF industry.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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