Ask us anything: When should you get out of an investment?

0:02Damo, what are you doing? well while we're waiting for our next podcast episode i'm sat here reading this magazine that's on the table about wallpaper very very quaint very old school you know what i never realized how much i missed those little rip-off sniffy perfume things that are in the middle but yeah i think um magazines are making a comeback mate in a world where everything feels digital and i'm just dying to put down a screen all of the time i quite enjoy sitting down with a magazine and having a read of it it's almost like you know buying a vinyl record yeah feels more real more tangible the music's more authentic it's richer yeah that's right which kind of leads us into today's sponsor one of the best finance publications in the uk is money week they're in print and online so you can get that nice magazine feeling in your hands money week sift and summarize the biggest stories in finance and then add their own journalism on top it means no more endless scrolling if you want to give money week a try you can get six issues in print and on the app absolutely free by visiting moneyweek.com forward slash money.

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1:18Welcome to our mini episodes where we answer your biggest questions about money. Like what does tea actually do for a living? I'm an entrepreneur. Import, export.

1:33So, first question. Paul slid into my DMs. This is what it says on a piece of paper. Sure, buddy. Put all the guys sliding in your DMs. They wrote, starting an investment is easy, but knowing if your fund is underperforming and when to leave it or make changes is more difficult if you're new to this. I'm guessing Paul wants to know, you know, how do I know that if I should sell, how do I know if I should buy more or whatever. We've actually got, we're doing an episode, aren't we, with Ramin in the future that will answer this. But for me personally, I have like a three list system on deciding if I'm going to sell something.

2:08That typically means if I bought it and I didn't understand what it was in the first place, which I think a lot of people have done, you know, they bought something because they heard off a mate and then they're like, oh, actually, I probably shouldn't have bought that. I don't really know what's going on here. Then I would sell it. if you can invest the money elsewhere for a better return. So with a fund, that could be that there's another fund that does the exact same thing, but it's cheaper, you know, on a monthly basis, then I would consider selling. And third is that there's something that's fundamentally changed with the investment that means you don't want it anymore.

2:36This more applies to individual stocks and shares. But with a fund, you might think, oh, Neil Woodford's just a massive fraudster, so I don't want to be in it. You know, so those are my three ways of deciding whether I want to be in it or not. The thing about what Paul's asking is in relation to funds or index funds, the strategy shouldn't change which way the wind's blowing. You know, so if it's bad times and the fund's down, that doesn't mean you start considering selling it. You see it as part of the long-term path of that investment. So I don't, I pay little to no attention on the price. I think a lot of people are quite reactive.

3:14They see the price go down, they sell. Exactly. I'm going to get scared, but especially if you're, if you've invested in the fund, it's a Warren Buffett, I think Warren Buffett or someone, yeah, Warren Buffett said that he doesn't invest in things he doesn't understand. So like you said, the first, first step is you would leave it. If you don't understand it or you bought it by accident or you bought the wrong thing, then you can get out. And you just got to be comfortable with the fact that like you could sell and then it shoots up, but you didn't know that was, that was luck anyway. If you were in that, you know, you can't kick yourself on that basis.

3:43I think there's like this point about people chasing their tails and selling when it's down and buying when it's up. Human nature. There's the Magella Fund, which was one of the most successful hedge funds ever. And over 20 years, it returned like an insane return, more than 20 % a year. But the average investor in that fund lost money because they just sold when it was going down and bought when it was going up. So it just kept dipping in and out. So if you just held it over the time, you would have had one of the best performing portfolios over two decades ever. but the majority of people just kept playing the hokey cokey with it.

4:15Do you know what I mean? I mean, this question is actually quite a good one because a lot of people, they don't know when to leave. And I think there's a fear, FOMO. Like you, mate. I'm still holding all my crypto. I'm not letting go. No, there's like FOMO. There's the fear of missing out. So like you don't, when it goes up, everyone's like, oh, I should buy it so I don't miss out. And then when it's going down, there's a fear of loss. You're like, oh my God, I'm going to lose. Like I'm losing my money. Let me get it out before. But really you're meant to be buying low, selling high. Yeah. And it's the thing of like, oh, it's gone down to a tenth of what it was.

4:45I'm just going to wait until it goes back up and sell because I don't want to lock in the loss. Right. But what people don't realize is that they might be missing out on returns elsewhere with that money. And that might never go back up again. You know, so I'm not saying sell things that are down. That's up to you. You've got to make your own judgment and an analysis on that. But those are the three reasons why I would sell. I didn't understand it. I've got a better investment elsewhere that I could make with the money or something's changed that means I don't want it anymore. That wouldn't really apply to funds, to index funds, but it would definitely apply to individual businesses.

5:17Could apply to the index fund if the fund manager got arrested or something. Well, the index will just track an index. An actively managed fund. Yeah. But if you found, okay, an example with an index fund might be that the fees change, they go up, or you find that it's not tracking the index well. So what that means is they said we've created a fund that's going to track these 500 companies at the end of the year you look and the 500 companies have done this and your fund's done that you'll be like hold on these guys aren't tracking it very well so i'm getting out of that you know that might be a reason that typically doesn't happen though yeah well they say if in doubt zoom out so you know take your time don't worry about the like what's going on day to day and look at like the long start using that one yeah you know about it no if in doubt zoom out yeah don't worry about the little little ebbs and flows worry about the the big picture yeah yeah that's what's got me holding all my crypto for everyone yeah so you say you don't um you don't look at your funds like every day you don't look at them too often how often should you kind of analyze your fund performance and think about moving things around i do look at it every day i'm fully addicted to that right you know little refresh you don't you don't it doesn't bother me it doesn't it doesn't trigger me anymore seeing it go up and down.

6:26If it goes down, I actually get a bit excited. But in terms of a decision of, should I be selling or whatever, that's on an annual basis, maybe. With a global index one, like I do, that strategy is one for the decade. So it's not really going to change. I might just look at the portfolio performance on an annual basis. I track my net worth. So every month, I'll sit down and see how much richer I am. And then - What was the number last month? I'm not saying that. Obviously. I've got some nice floors and doors. So the thing about that means then is I'm looking at the funds anyway. So I might, I might look at it then, but I'm rarely ever considering should I buy, should I sell another fund?

7:09That's, that's maybe once a year. In reality, I'll hold the same index fund that I do probably for 20, 30 years. Okay. So next question is from Emory Apathy. I like this question. Why is my money not growing quick enough?

7:26I'm guessing what what Emery Apathy is asking here is why why is why is the money not performing why are my investments not performing I mean it's quite vague I don't know where the money is yeah that would be helpful yeah yeah you know if it's in a bank account it probably won't be growing fast enough if it's in the stock market then I would like to know how old Emery Apathy is because I feel like this is a very like is it Gen Z yeah Gen Z thing they all want everything now even my brother my brother invested in crypto he's like why am i not rich yet and i'm like it doesn't you don't just put the money in and become a millionaire i feel like your dad would have said the same thing about you though about stuff yeah so i think that is a bit of a generational thing that you're you're definitely a bit more impatient when you're a bit more impatient but i mean i've learned to be patient yeah yeah um so i think emory's question really is one of the distribution of returns and what i mean by that is emory's probably expecting to make a certain amount within a year and then not making that amount within a year.

8:19I did an analysis on the stock market and the S &P 500 over like 40 years. The average rate of return is 10%, but only one year had a 10 % return. All the rest were like plus 20, minus 15. It's more common to have a plus 20 return than it is to have the average return of 10. So I think maybe to you, Emery, I would say go study the returns on whatever asset class you're investing in and get used to the fact that this isn't a smooth ride up? So, I mean, what I would say to Emery from my personal experience is that you can go chasing aggressive returns and like quick, quick wins, but you're obviously going to increase your risk atrociously.

9:01Like your risk appetite has to be high for that because I've done that before. I've put eight grand in something that my friend said was going to the moon and I have zero pounds left of that eight grand. So you can win big overnight, but you've got to realize you're gonna have a lot of risk, just like anything. Like you see all these ads online, they're like, oh, make a hundred pounds an hour from home sitting at home. Like the chance of you getting scammed in those ads are probably pretty high. I wouldn't personally trust anyone saying you can make like two grand a day sitting at home in a random advert, or the people that message you on LinkedIn and they're like, oh, would you like to join my trading course?

9:34All my people are making five grand a day. You will probably lose your money like immediately. So you can get the more aggressive returns. For example, look at crypto. but again a lot of people lose most people lose money in crypto like to be honest the majority of people have lost money so yeah more risk risk reward is it rewards yeah and that the quicker and higher you want the reward the more risk you're going to take and it gets to a point where it's like if it's going to make you rich overnight with no effort then it's gambling isn't it and you might as well yeah bet on a football value in life doesn't come for free it's like people could work all day, eight hours a day and earn a couple of grand a month, but then they expect to make two grand a day passively through some weird course.

10:14It's like, you know, it doesn't translate that value. Exactly. So it's just like going to a casino, you put it all on a 32 black. If you hit it, you're going to be loaded, but the chances of you hitting it are one in whatever, how many, 32 or whatever. Yeah. So you've got to, you've got to really like have a risk appetite and know what you're getting into. Yeah. Stay safe, Emery. Sounds like you're about to take some wild risks. Sounds like me a couple of years ago. Take it easy, buddy. Don't go too wild.

10:43What do you want to ask us or future guests? Email us at makingmoneyatkindling.media or just slide into the DMs. This isn't advice. Whilst we discuss individual examples, we can't give you personal financial advice. What we can do is offer a perspective and discuss the issues. I'm Damo. I'm T and we'll be back next week answering some more of your questions