Jill Kerby: No more excuses for investment failure

Why have so many Irish people lost so much money from their investments?

Why have so many Irish people lost so much money from their investments?

The most common reason that I’ve heard over the years is: “I didn’t understand what I was buying” and it applied not just to retirement investment funds or funds for school and college fees for the children, but to the poor value endowment mortgages and whole-of-life insurance cover that is still sold today.

Despite the national myth that we understand and appreciate bricks and mortar, the ignorance plea is also widely used to explain why the nearly the entire nation was taken hostage by the cult of property investing and amateur landlordism.

Our general understanding about how money works was never particularly strong – even before the Celtic Tiger cheap credit years, with the average person in the street unable to explain how compound interest worked to rapidly balloon a credit card balance, let alone having an ability to explain the basic workings of the stock markets.

Even today, how many owners of the 880,000 private pensions in the state – and this includes the additional voluntary contributions that public service workers own – really understand the nature and rules of their own pension scheme? And can anyone explain exactly how initial and trail commission will affect the final value of their retirement income?

In his new book, 3 Steps to Investment Success, the former stockbroker (he was a founding partner in Merrion Capital) Rory Gillen, who now runs a successful investment training and advisory service, Gillen Markets, sets out to identify the common pitfalls of investing, but also to provide the ordinary investor with a road map to follow to not just make money from the markets, but more importantly, how not to lose their money.

We’ve all met, at some stage, people who have made piles of money buying certain shares or property. They often describe themselves as lucky and more often they have been. They were lucky enough to buy a share early in its ‘parabolic’ phase or bought and flipped the investment property when that particular bubble was inflating.

The real sign of a successful investor – and not just a lucky speculator – is when your shares and funds or assets make steady but slow profits consistently through the combination of prudent selection of genuine value assets and have the wisdom to let the magic effect of time compound the annual share dividends or the annual yield from the property.

From the start of this excellent book, Gillen insists that “Saving or investing in the stock markets is for everyone – from parents with the children’s allowance, to someone who has a lump sum to invest, to the person who has just started working but can save even €100 a month, to someone who is free to manage their own pension.”

Gillen is a firm advocate not just of regular investing in bargain priced ‘value’ stocks, but in diversifying your purchases. You should never only buy just one sort of shares, say, financial or banking stocks (sound familiar?) or even shares from a single part of the world, such as the UK or the US, and especially not just from Ireland where our market represents such a tiny part of the global marketplace.

This is also a feature of the herd instinct that he warns against – and some of the biggest beasts in that herd are too often the highly paid professional fund managers to whom we give our money to invest.

Gillen makes you start with the basics – getting your personal finances in order first, then learning about how compounding works, the difference between investing and speculating, about volatility and how different it is from risk, the difficulty in picking individual stocks (the average investor should favour ETFs – low-cost exchange traded funds).

As the chapters progress, they become more technical and he goes into considerable detail – still in very understandable language – into the different kinds of investment classes and assets there are and then suggests specific strategies that you can follow.

There is a particularly interesting chapter on direct stock market investing and property investing that would have saved hundreds of thousands of people tens of billions of euro and the country its financial sovereignty – if he’d written this book a decade earlier.

With the catastrophic collapse of the nation’s wealth still in mind, this very solid but conventional enough investment book takes a very different direction with the last chapter with a short story, titled “A Villa in the Sun” that Rory Gillen commissioned by the UK award-winning writer and filmmaker Virginia Gilbert.

It tells the story of two middle-aged brothers and their wives who have taken very different routes to make their respective fortunes. The younger one, the “earnest, diligent” Frank, a librarian who arrives with his teacher wife, Moira, at the older brother David’s beautiful Spanish villa for a rare holiday. David has already made a fortune as an entrepreneur and having sold his business is now retired, but has become a trader and speculator with the proceeds of the sale of his business. His broker has just persuaded David to use highly leveraged CFDs or contracts for difference, to invest in a “sure thing” stock that his firm is convinced is on the verge of a major price breakout.

A Celtic Tiger reworking of the Aesop’s Fable of the tortoise and the hare, “A Villa in the Sun” reminds Gillen’s readers why taking the slower, steadier route to investment gains – as Frank and Moira have done all of their lives by regularly saving and investing their surplus funds – will always pay off over the longer term.

But it does require a level of practical realism and mostly patience, a virtue that too many of us lack, especially in the face of any kind of market volatility – something, says Gillen, that is always part of the investment process.

3 Steps to Investment Success – How to Obtain the Returns, While Controlling Risk is published by OakTree Press and is available at all good bookshops.

jill@jillkerby.ie