My journey in the stock market begins in January 2015. I had moved to UK in March 2013, leaving my hard earned euros in a Fixed Deposit on my Spanish bank. When this deposit ended, I saw that the “amazing” returns offered were 0.5%, so I started to look for alternatives. My bank was marketing its Investment Funds, and I asked myself: what is that?
I had a look at all the funds, checked its past performance on the previous 5 years, and decided to put money on 3 funds:
- S&P500: fund that aggregates the 500 biggest US companies
- IBEX35: fund that aggregates the 35 biggest Spanish companies
- Fixed return: conservative fund that invests in bonds and treasury bills
I was checking every month the evolution, and I was seeing S&P500 and IBEX35 going up and down around 5-10%. After two years the S&P500 began to clearly outperform the other funds. It had grown 15%, while IBEX35 was 7% down. The Fixed return fund was at an astonishing 1%….
One year later the gap between S&P500 and the others became bigger. S&P500 was on 30% return, while IBEX was moving around break-even and Fixed return was still on 1%… (come on turtle, you can move faster)
At this point I decided to sell my two other funds and move the money to the S&P500 fund. This made me think that very high returns, such as 10% per year, were possible. This was a key point in my stock market journey. I decided to investigate about more possibilities. After a while I opened a Stocks & Shares ISA account with Hargreaves and Lansdown.
First steps in investing
Hargreaves and Lansdown fees were low for a small portfolio (0.45% of the value of your account), they had an immense selection of funds, and they were a reputable business. This last part is something very important when you are going to put money anywhere. You always need to make sure that your money is going to be in “safe hands”.
To do so, you must check the company track record, average score in reviews, if there are any bad reviews (if so, what do the customers complain about), and above all, if there is any mention to scam in any website.
UKTrustpilot is very useful for this task. I usually visit the company’s website, check the company’s average score in UK Trustpilot and filter by bad opinions, devoting special attention to the reason why the customers are complaining. People tend to complain a lot, so it’s important to differentiate between “Poor customer support, it took me 1 hour to speak with someone” and “I cannot withdraw my money. Please get away from this company, it’s a scam”. The former helps you get an idea of the weaknesses of the company. The latter is a warning sign of potential scam.
Going back to Hargreaves and Lansdown, after opening my account, I checked the most popular funds and picked the 5 ones that had had the best performance in the previous 3 years. Some funds had performed better than others, but I wanted to diversify by not putting “all my eggs in the same basket”.
Mutual Funds Revelation
Six months later, in June 2018, I decided to review deeply their performance. In summary, two funds were performing very well (10% return) while the other three were ranging between -5% and break-even. I decided to concentrate my money on the best performing ones, so I sold the poor performing funds and transfer the money to the other two.
I was very pleased with the returns so far, so I resolved to add more money. One month later, in October 2018, the market took a downturn and I began to suffer. I believed that, in the long term, the value would go up again. However, this was my first experience with a downtrend and believe me, it wasn’t easy to hold the investments!
Between October and December, S&P500 went down 20%, dragging my funds with it. I remember I was not being very happy about spending money during Christmas because of it.
I kept my faith in the long-term performance of the market and it proved to be right. At the end of December S&P500 began to raise. By the end of January 2019 it had grown 17% (in just 6 weeks).
This type of behaviour led me to learn more about the stock market and its performance. By then my positions in the stock market were:
- S&P500 fund: 8.6% annual return during 4 years (40% total return)
- Fundsmith Equity: 9% annual return during one year
- Lindsell Train Global Equity: 16% annual return during one year
Let’s go a bit into detail on each one of them
S&P500 Index Fund
I bought it on January 2015, initiating my journey with the stock market. Two years later I realised it was performing much better than the other two funds I had, so I moved the money to this fund, increasing my position.
On above chart we can see S&P500 performed very well on 2016 and 2017, increasing more than 40% in just two years. This means more than 20% annual return. I was very happy with its performance, so I had no doubt about keeping it in my portfolio.
Fundsmith Equity Class I – Accumulation
I opened an account in Hargreaves & Lansdown on November 2017, and by the end of the month, I did my first contribution to Fundsmith Equity Class I – Accumulation fund.
The picture illustrates how the fund had grown a lot before I deposited money in it. It obtain a 20% return from September 2016 to September 2017.
I made my first deposit in November 2017. In July I had obtained 15% return, so I decided to add more money.
I didn’t like when the market dropped heavily during the end of 2018, but by January 2019 I was again 10% up (comparing to my initial investment), in a little bit more than a year.
These results were very good for me. I started to wonder if this was just luck, but let’s not get ahead of ourselves.
If you want to learn more about this fund, you can check out the details here.
Lindsell Train Global Equity Class D – Income
On the same day that I made my first deposit in Fundsmith, I also invested in Lindsell Train Global Equity Class D – Income. Its past performance was astonishing, and I was hoping they could carry on doing the same good job in the future.
Lindsell was performing even better than Fundsmith. By July 2018 my initial money had grown 28%, so I added more money (like I did on Fundsmith).
Again, it was not easy to see the downturn in October-December 2018, but with the recovery on January, I was 23% up.
I was fascinated by the performance, and I embarked myself on the task of getting to know the stock market.
If you want to learn more about this fund, you can check out the details here.
The learning phase – Beginnings
My stock market journey was starting to get interesting. I needed to understand how stocks behaved, so I started to search for information on internet. The problem that I faced was not the lack of information, but quite the opposite.
There is so much information in Internet, that you don’t know what/who to trust. You can find “experts” who will tell you:
- Do not put money now, stocks are extremely overbought
- Invest in stock market now, it’s about to have a big upside move
- Dividends stocks are the best stocks, you get regular income and their value is more stable
- Intra-trading is the best way to earn money quickly
- Don’t do Intra-trading, unless you want to lose all your money with the commissions
- Invest periodically in the market for many years, so you can overcome the recessions and market crashes
- Commercial war will generate the new recession, stay away from stocks until it’s resolved
- Interest rates are on the raise, which means that stocks will be more volatile, and soon they will suffer a drop
I could go on, but I think we have enough to make my point.
As you can see, many of above sentences contradict each other. If all of them were said by experts, it means that someone has to be wrong.
The problem for me was that I didn’t know who was right and who was wrong, what to believe and what to refuse.
I have always been good at following one course of action, as long as I am convinced that it’s going to take me where I want to be.
The learning phase – Taking off
While I was immerse in this confused learning phase of my stock market journey, I took a trip to Norwich to visit my good friend Sergio and his wife Patri. It’s funny how sometimes a small detail can change everything.
For me it was that trip. We went for lunch, had some laughs, and then visited their house. I was telling them about my ideas of becoming financial independent, and my struggles about finding the right investment strategy. Sergio recommended me to read a book called “Rich Dad, poor Dad“. He told me he had enjoyed it a lot, and found it very useful. Little I knew that little action would have such a big impact on my finances…
I started reading it on my way home, and I totally fell for it. I finished it in 3 days, and it completely shocked me.
It’s important to note that there are some ideas of the book that I completely disagree with, being specially sad how Robert Kiyosaki talks about had working people. He is constantly describing them in a poor way, and that’s something I don’t agree with.
Rich Dad, Poor Dad – Main Takeaways
Having said that, there are some ideas in the book that are very valuable:
- Rich people make money work for them, while everyone else works for money
- There is a big difference between assets and liabilities. Assets put money in your pocket, while liabilities take money out of your pocket
- The need for regular people to change their mindset about money, if they want to become rich
Those ideas dawned on me. I realised the 8 hours I had spent reading that book had been much more productive than months of reading about stocks and investments on internet.
If you want to learn more about my stock market journey, please take a look at the last chapter here.
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