The time I lost £50,000
🔸 Plus: When Mercury is in retrograde, stock markets drop, allegedly🔸 A man made $2 million selling vintage Barbies 🔸 Hugh Grant was taken in by a viral charity scam 🔸
Your 2-minute guide to demystifying money and making you richer
The markets, year-to-date
S&P 500: 5,346.99 ⬆️ 12.74%
FTSE 100: 8,245.37 ⬆️ 6.52%
Bitcoin: $69,280.90 ⬆️ 56.73%
GBP to USD: $1.2724 ⬇️ 0.024%
GBP to EUR: €1.1819 ⬆️ 2.50%
What it’s like to lose a lot of money
In the last edition of Moneyin2 I discussed the first time in my life when I started to make serious money through saving and investing, and what a light-bulb moment that was for me.
The key lesson, if you missed it: having your money work for you is better than working for money.
Thus far at Moneyin2 we’ve been pretty upbeat about how investing works. Save regularly! Max out your ISA! Buy ETFs! The market gains 6-10% per year, on average! You’ll be fine!
But stocks can go down, too (duh). And I don’t want to gloss over that.
So in this email I’m going to talk about one of the worst moments in my entire life: the time I lost about £50,000.
Let’s wind the clock back to 3 August, 2007...
Most people didn’t think anything was wrong
Stocks were up: The S&P 500 index hit a high of around 1,500.
Everyone was happy.
But if you worked inside one of the global investment banks, you knew things were slipping out of control.
The world got its first glimpse of the nightmare to come during one of the greatest-ever moments of live television: Jim Cramer’s epic meltdown on CNBC.
In a six-minute rant, the increasingly angry hedge fund manager revealed he had been secretly talking to the heads of major US banks. He said they were all terrified because the market for mortgages had suddenly ground to a halt. When banks can’t sell or buy mortgages they’re in danger of going bankrupt.
Cramer, apparently unhinged, began yelling at the top of his lungs that Ben Bernanke, the chairman of the US Federal Reserve, needed to rescue these banks with emergency funding immediately:
“He has no idea how bad it is out there! HE HAS NO IDEA! HE HAS NO IDEA!”
Watch it here:
At the time, Cramer’s rant was dismissed. The New York Times called it “over the top”.
Cramer turned out to be right
The banks were under water on their lousy investments in the property market.
Stocks took a nosedive in late 2007. They didn’t hit bottom until March 2009, having lost about 50% of their value. The collapse was on the scale of the Great Depression of the late 1920s:
It was awful.
US unemployment more than doubled from 5% to 11%. Iceland and Greece technically went bankrupt. Nine British banks were forced to take rescue packages from the government. Lehman Brothers and Bear Stearns — venerable financial institutions — blinked out of existence.
Every adult who lived through it remembers it vividly. It felt like the world was ending.
£50,000 up in smoke
For years, I’d been diligently saving a percentage of my salary, every month, into a retirement plan. That plan was invested in stocks. My plan had done well. Since the early 2000s stocks had nearly doubled in value.
With the market in freefall, by March 2009 about £50,000 of my life savings were gone. I remember thinking, “I don’t know how I’m going to recover from this.” How many extra years would I have to work to get that back?
I felt like an idiot.
I felt robbed.
I’d done what “they” always tell you to do — and lost.
It was a dark, lonely feeling.
I could feel it physically, in my stomach and chest.
I talked to some friends who worked in finance. They reminded me that stocks don’t go down forever. “No point in selling,” one said. “All you’ll do is lock in the loss.”
I didn’t sell. I kept the faith. I continued to save a percentage of my wages each month and put them into “The Retirement Plan of Doom.”
Punishment ensued
Pretty much every month from October 2007 to March 2009 — fifteen straight months — the balance on my investments fell. I was throwing money into a pit.
Stocks didn’t regain their 2007 peak until 2013 — six years later!
But my savings regained their losses faster than that. I had accidentally done something smart. As the market declined, each pound I put into it bought more stocks than it had before. At the bottom of the market — with each share worth half what it had been at the peak — my money was now buying two stocks where previously it had bought one. So when the market began rising again, there were many more stocks in my account than before. That magnified my gains, and my savings bounced upward faster than the market as a whole. (There’s a name for this process, it’s called “pound cost averaging” and it’s one of the ways to beat the market simply by being in it.)
I recouped the lost £50,000 sometime around 2011 or 2012. And while I wasn’t “ahead” I was no longer behind.
Why am I telling you this?
Because you have to be realistic about saving and investing. It’s comforting to assume that because the S&P 500 goes up 6-10% on average it’s going to do that every year. That is not how averages work. The market can go through down-cycles that last a long time.
The 2008 financial crisis took six years to unwind. Prior to that, the 2000 dot-com bust took seven years to cycle from top to bottom to top.
You have to be in this for the long run.
You have to assume that your money is going on a terrifying rollercoaster ride.
Crucially you have to keep buying, and keep holding, even during the worst bits — because it’s that routine habit of buying assets as they get cheaper that makes you richer when the markets, inevitably, turn around.
And for dessert …
A Barbie dealer made $2 million selling vintage versions of the doll.
Here’s a list of brand names rejected by Companies House on the grounds they’re too offensive. They include Airborne Mother Truckers Ltd, Baking Bad Sexy Waffles, and D1ck Corp.
When Mercury is in retrograde, stock markets drop. Read the amusing and unreliable research on the effect of astrological movements on stocks here.
America’s biggest news media brands are all now run by British people. “Yes, our standards are a bit lower, but we’re extremely competitive and intense and no-nonsense, and that’s probably helpful given how the industry is going,” said an insider.
Apparently, some people are still trying to make money selling Beanie Babies, the stuffed toys from the 1990s.
Hugh Grant, Gary Lineker, and Steven Bartlett have all been taken in by elaborate viral charity scams.
PwC laid off a bunch of staff and ordered them not to talk about it. Naturally, they talked about it.
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ah, the Cramer Meltdown! I sold all of my mother's holdings right after that. One of my best investment actions ever. Folks mainly remember Cramer's miserable calls, and of those there are many, but a few times, he got it 100% right. If only he had melted down in February 2020 -- that would have spared me from selling a month later, at exactly the wrong time.
Money-cost averaging works excellently, until it doesn't. Anybody in Japan who did that from 1990 onwards has been unhappy for most of the meantime. Not to mention: Russia 1917, Germany 1940, Argentina ?2000...
Very good post, nonetheless!