1492644524158 - Adrienne Duarte:  Lesson’s I’ve learned from a lifetime of investing

Adrienne Duarte: Lesson’s I’ve learned from a lifetime of investing

OPINION: Some of my colleagues were amused when I mentioned recently that as a young teenager I spent some of my spare time reading company annual reports and prospectuses. But that’s when I first took an active interest in investing.

Along the way I’ve learned a lot. We, of course, learn from our mistakes and by observing the mistakes by others. So how can investors avoid the investing pitfalls I’ve seen along the way?

Adrienne’s lessons:

What goes up must come down

And it will come down when you least expect it.

I tend for look for opportunities as an asset is coming down in price. Sometimes this means I have to ride the drop on the way down, continuing to buy and lowering my average cost.

On the other side of the equation, it’s impossible to pick an investment’s peak so don’t be afraid to sell on the way up. If you keep waiting for the peak then you will probably miss it and end up selling on the way down – or worse yet – not selling at all.

Be in it for the long haul

You have to know when you are a trader and when you are an investor.

I see equities as a long-term investment. In fact, I’ve held most of the stocks in my portfolio for five to 10 years and some for even longer.

I’ve been through the peaks and troughs and I’m in a better position as a result of staying the course.

Understand your own risk profile

And then don’t exceed it.

I know that I like to invest with cash to buy and hold. I don’t buy equities using leverage (debt).

Others prefer to take on more risk by taking on debt to invest. This approach is also fine but if you take a position while highly leveraged then you need to be aware that you could be exposed to potential losses and margin calls (the need to top up your security position).

Getting outside your own risk appetite is a sure-fired way to end up panic selling – turning those potential losses into real ones.

Know when you are having a punt

I love investing in penny dreadful mining companies and biotechs. But I go into these investments with amounts that I am prepared to lose.

I know that I am, in effect, gambling with these investments. As such I treat them differently than my core portfolio that is focused on providing for me in my later years.

Biotechs, fintechs, exploratory mining companies (whatever is your speculative sport) is a bit of spice and fun in your portfolio, but never bet your house on it.

And when they spike, take your profit and enjoy your story. Until the company becomes mainstream volatility will continue (good and bad).

Think outside the square

When considering asset classes most investors think about cash, equities, funds and superannuation products. But what about wine, art and stamps?

According to the Knight Frank Luxury Investment Index Classic Cars as an asset class gained 490 per cent in value over the past 10 years.

But these types of investment need to be carefully considered as part of an overall strategy as they are usually much harder to turn into cash when you need it most.

You need to decide how much of your investment pool should be in liquid assets so that if you need to pay down debt quickly due to unforeseen life events like poor health or losing your job you are not forced into a fire sale of items with a small pool of potential buyers.

This leads me to my final lesson.

Diversify, diversify, diversify

It’s the lesson that everyone should know but many don’t heed. And this is a particular problem at the moment with so many investors overly reliant on property.

Different asset classes will peak and trough in value at different times. But diversity needs to be broader than just asset class.

Ideally investors should be looking at different industries, market segments, countries of operation and currencies.

Getting this level of diversification is hard with a small asset base when picking individual investments but is achievable through the savvy use of funds that are themselves diversified.

Adrienne Duarte is BNZ’s chief financial officer.

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