- 2 on whether preparation and research plays a part in “luck”.
Plus: Winning entries in competition to win a copy of “Get Rich Slow”.
QMary, you say you some rich people have a reluctance to acknowledge how luck has helped people get rich. I concur, as in many cases it is pure timing. Being in the right place, at the right time to launch your product.
In life “timing is everything” as my screen saver at work said. Timing to get that perfect job, ideal partner, desired promotion, rewarding investment or even just staying alive by conversely not being in the wrong place at the wrong time when that speeding hoon was coming straight towards you.
Timing you can assess in some way by studying trends, fashions, under-supplied niche markets and political direction.
Graham Hart got going by buying a government printer from a Treasury not skilled in selling, so he was even paid a partial refund before he sold it for a massive profit.
I once knew a very skilled farmer who bought his first farm in Perth’s wheat belt. He had the skills, machinery, size of property and money to survive the first two years, but he bought in the first year of a seven-year drought, so he had no hope and went broke. Was it bad luck or bad timing?
AIn his case, clearly bad luck.
In some situations, research can certainly help us make timing decisions — such as when to start a business, apply for a job or “pop the question”. (In the last case, the research might involve noticing what puts the loved one in a really good mood!)
Obviously, though, we can’t know when a seven-year drought is coming, or a crazy driver is heading our way. And I would put timing of investments in the same category.
I’ve got a folder full of research that shows investors who try to buy low and sell high — timing the markets — are highly likely to do worse than those who buy and hold.
One example: US managed funds returned an annual average return of 10 per cent over a recent 10-year period. But the average return of investors in the funds was just 2 per cent. They kept going into funds after they had done well and getting out after they did badly.
Another study showed that it doesn’t matter all that much when you buy shares, if you invest for the long term.
Let’s say an investor put $5,000 a year into a New Zealand share index fund over a 30-year period, always reinvesting dividends. And he always did it on the last day of a month — just because that’s the data that were available.
If he were extraordinarily lucky and invested $5000 each year in the month when share prices were lowest, he would accumulate $2.08 million before tax.
If he were extraordinarily unlucky and always invested in the month when prices were highest, he would accumulate $1.65 million.
If he simply invested one twelfth each month, he would accumulate $1.85 million.
The numbers are exaggerated because we make no allowance for tax. Also, past share returns were higher than we expect in the future. Even so, given that the total investment was just $150,000, even half the growth in any of the scenarios would be impressive.
But my main point is that good or bad luck with timing doesn’t make as much difference as most people would expect. And, given that it’s impossible to know which month will be best anyway, you can do almost as well by steadily investing your money regardless of what the markets are doing.
This of course applies much more to long-term investing than short-term. But wise share investors, such as Warren Buffett, the world’s second richest man, are in for the long haul.
One more item from my folder: When US analyst Elaine Garzarelli predicted the October 1987 Crash just four days before it happened, Business Week called it the “call of the century”, according to a PriceWaterhouseCoopers newletter.
But her success was shortlived. Between 1987 and 1996 she made 13 calls that the share market would rise or fall. She was right five times, “which is worse than if she had flipped a coin”.
The moral of these stories: Don’t try to time markets.
QRe your past few weeks’ comments on “luck”, isn’t luck where opportunity and preparation collide?
AWhat a lovely succinct way of putting it — except, as we’ve just discussed, in situations in which preparation does you no good.
AND THE WINNERS ARE…
Heaps of people entered our contest to win a copy of my new book “Get Rich Slow: How to grow your wealth the safe and savvy way.”
Readers were asked to say, in 50 words or less, why they should win, being clever, funny, wise, poetic or pathetic.
It’s been fun reading the poems; being called — more than once — “Mary the money fairy”; being lumped in with Warren Buffett; and reading the sad tale of the bloke who wants the book so he doesn’t have to browse “ten pages a day at the bookstore whenever I pass.”
To the several entrants who said they and their spouses had contrasting attitudes to money: the chapter in “Get Rich Slow” about male and female investing might help you understand one another better!
And so to the winners — some of whom got shy about having their names published. I know judges often say this, but it really was hard to choose, so Penguin stepped in and gave us ten copies to give away instead of five. Here are the winning entries, in no particular order:
Not rich — need advice — got time.
— Don Martin, Campbells Bay
If you’re as thrifty with money as with words, you can’t go wrong.
Thought I’d make some money quick:
Telecom was $6 — seemed the goods,
Feltex 60c — should come out of the woods.
I punted big and now I’m in the red,
Can’t sleep when I’m in bed.
Mary, please help me recover my dough,
Kindly send me “Get Rich Slow”.
— Morris North, Christchurch
Check out the sections in the book about how important it is to diversify and how short-term share trading is not a good idea!
I should win a copy of your book so as to provide balance in the universe. How so? Because some years ago you won a copy of my book — “A Dandelion by Any Other Name”. Therefore it is only fair that I now win a copy of your book.
— Doreen Davy, Albany
And all I had to do was to have my name drawn out of a hat. I enjoyed your book too.
I would love to WiNZ your new book so that I could learn to avoid all the dangerous VIPERS, SPIDERS, and MOZYs. The slow and steady TORTIS beats the hare, even though the hare looks cool like the FoNZ. All that glitters is not GoLD; but DIAMONDS are forever!
— Harsh Bhoopatkar, Grafton
You went on to explain that all of the words in capitals or part-capitals are different investment funds, including some in Australia and the US. Clever.
Just to prove to my highly intelligent grandson, Nicholas, that going slow, like grandmothers do, is not always a disadvantage.
— Anonymous Grandmother, Te Awamutu
I must have a soft spot for grandparents. See next entry.
Grandson this month turns twenty-one,
And has not a penny saved.
The car, the music and lots of fun
Leave thoughts of saving waived.
To get rich is his stated aim,
This book would set him up to gain
If not wealth, a way to beat financial pain.
— Owen and Isabel Weenink, Tauranga
I like the idea of getting the message through to the young. How many of us wish we had the time to achieve what they can!
We have $45,982.33 invested with Provincial Finance and would not like to make the same mistake again. We believe your book could help us.
I hope this message is pathetic enough for you.
— Anonymous, Remuera
This was the first entry I received, and it almost brought a tear to my eye. But the top prize for pathos goes to the next entry.
As a very old OAP
Mary gave good advice to me,
So now I would love to see
How “Get Rich Slow” would apply to me,
In easing my way to the cemetery.
— Esme Peters, Beachlands
I had a brief phone conversation with you, and it sounds to me as if you’ve got plenty of life in you yet!
Why should I win a copy of “Get Rich Slow” in 50 words or less? I really really really really really really really really really really really really really really really really really really really really really really really really really really really really really really really really need it!
— Jacqui Parker, Northcote
I get the message.
4pm Saturday drink with spouse,
Children dispatched to end of house.
Ambitious discussion of Mary Holm’s column,
Debate and reflection — the mood has turned solemn.
Realise kids’ future has just been consumed.
Quick! “Get Rich Slow”, or this family is doomed…
— Jane Wilson, Mt.Albert
I liked your note: “The chance to be a published “poet” so close to a national poetry day (yesterday) is too good to turn down.” We’ll look out for you on next year’s Montana Poetry Day!
Thanks to all entrants. I really enjoyed reading your contributions and kind comments about the column.
No paywalls or ads — just generous people like you. All Kiwis deserve accurate, unbiased financial guidance. So let’s keep it free. Can you help? Every bit makes a difference.
Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.