INVESTOR EXPERIENCES

Let the cobbler stick to his last

Being a successful investor is a full-time activity

28 . 12 . 2020
PEDRO Ruiz Rebollo
Investor

3 minutes

We’ve all seen that every Spaniard is the manager of the national football team at heart. We only have to wait to see the squad for any European Championships, World Cup or simple friendly to hear comments criticising that they’ve called up a player that we think is finished and didn’t call up one with more talent, usually from a team we support. 

There are other professions where this intrusion is not so common. Although we Spaniards are very fond of self-medicating for minor ailments, no one in their right mind would take out the a toolbox to clean a cavity or operate on a meniscus, even though we have seen plenty of examples in the cinema of how even a bullet wound can be “cured”.  

Neither can any of us, except for the very handy among us, open the car bonnet and fix that noise that started after we hit that last kerb. Even changing a light bulb is getting more and more complicated! And although during lockdown some of us have been left with no choice but to cut our own hair, it’s not something we do often. 

However, another typical case where we are all “managers” is in the world of finance. We always know a friend, acquaintance or the infamous brother-in-law, who boasts of all his stock market successes and it seems that making a fortune comes easy to him. This year will be different, but in normal conditions, during the Christmas holidays or meals with friends, we would meet someone boasts of his “nose” for bargains, although that’s certainly filtered through the biases that make us forget those failures that we prefer to ignore.  

I myself took part in this intrusion when, as a teenager, I was introduced to the stock market. My grandfather, instead of the bicycle I had asked for for my birthday, gave me some “matildes” (this was how Telefónica shares were known in the 60s) and instilled in me a fondness for the stock market.  

My method was very simple, as these were simpler times and there was no internet, I would cut out the list of companies from the Madrid Stock Exchange from the Sunday paper (the Ibex didn’t even exist then). If last Friday’s price was closer to the year’s low, that was a buy signal because anything that traded high has to go back to that level, right? I even made myself some graphs with graph paper to confirm my theories. My cognitive biases still remind me of how much I gained from the shares of “La Unión y el Fénix“, but I don’t remember the companies I lost with, and there were many. 

Another common method I used was to subscribe to all public offerings (IPOs) in which I made a substantial profit with Terra or TPI. But as the years went by, what was to be expected from such a sophisticated method ended up happening, and it was then that I realised that being a successful investor is a full-time activity and not something for just a few hours here and there. Thorough work, not “brother-in-law” rumours, is what leads to success. When there’s a tailwind we all move forward, but when circumstances become adverse, that is when the experienced are distinguished from the laypeople. I was one of the latter, but when I was surfing a rising wave, I thought I was an expert. 

Does that mean that the private investor shouldn’t do anything with their money? Not at all. In fact, there are many things you must do for your savings if you want them to grow. Begin by defining your financial goals, i.e. where the money you save will go: for retirement, to get a new car, to have a nice trip on your silver wedding anniversary, a university fund for a newborn baby… 

In relation to the above, you must determine your risk profile, which in plain language is the asset distribution that allows you to sleep peacefully every night with the ups and downs of the stock market that are bound to occur. Regarding all this, we are left with the decision on the asset distribution, opting for passive or active management, the geographical spread, the frequency of contributions, how to rebalance…  

And once we’ve reached this point, or even earlier if we need help, all that remains is to select the professional who will be responsible for the day-to-day management of our money, because managing an asset, even a small one, is a full-time task. 

Using the analogy of the dentist, and sorry, but I have my annual check-up at this time of year and I’m very aware of that fact. I brush my teeth, I use dental floss and mouthwash, but for everything else, my main task should be to select the professional who offers me the best guarantees and trust them to take care of me. In short, as the popular saying, full of wisdom, goes: let the cobbler stick to his last.