20 October 2017
This week was the 30th anniversary of Black Monday. A crippling stock market crash which wiped 23% off the FTSE100 in just 2 gut-wrenching days in October 1987. I was 16 (surely not, you cry) and I still remember the shocking pictures of grown men weeping outside the Stock Exchange.
The dot.com crash in 2000 was when I really learnt about the stock market. I was working in Australia and I had my first share portfolio. Jam packed full of shares in companies which did things I didn't understand and made suitably fashionable losses. And I bought them. I even owned shares in an IT business called Sausage. #cringe
To make matter even worse, I took a ‘margin loan’ out in the process. I borrowed $15,000 to buy more shares. This is all very exciting when the 50 cent stock tips $14. But when you ride that all the way down to 5 cents it gets less fun. Because they start to call in the debt - this is the stock market equivalent of negative equity. And you can’t sell your shares to pay off the debt because they’re not worth anything.
I worked for the fund management division of the same financial firm I had the portfolio with. Every day the phone call came to pay off some of my loan. My low point was actually hiding behind my desk when my broker came downstairs to find me to demand the latest margin call. Yup. I didn’t have a bean left. So I hid!
I share this story with some shame but also to illustrate what I learnt (the very hard way) as a lesson when dealing with the stock market. Good investing should be boring. Never invest in a company called Sausage which is owned by a spotty 21 year old ! I don't buy shares in businesses I don't understand which don't make money. I didn't pile into the recent digital currency boom. Only take punts with money you can afford to lose. I still avoid individual shares and invest in diversified funds. And I don’t borrow to invest.
Is a crash on the cards?
Nerves are high at the moment. The UK stock market feels pricey. We’ve an alarming sense that the ‘grown-ups’ running the world don’t know what they’re doing. Some core economic foundations of the UK are uncertain. Is the market going to crash you ask?
A friend of mine has a 95 year old granny. At a recent tea, his child turned around and said to her “You’re very old. Are you going to die?” As he cringed, she calmly picked up the tea pot, poured a cup of tea and said “Yes darling. But not today.”
The stock will of course crash again at some point. But I have no idea when. I just try to make sure that I won’t need to be a forced seller when it does. I leave you with 2 thoughts.