Investing in Shares 101: My Experience 1

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Dr Tony Stewart is a scientist and analyst by training. He has run a strategic market research business and has an extensive background in statistical analysis. At the beginning of his investment career, he read widely and undertook courses on investing run by the Securities Institute of Australia. He has invested in the Australian stock market for thirty years.

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Investing in Shares 101: My Experience Part 1 — Beginnings, Floats and My Major Error

1 Introduction

I have broken this into two parts because it became too long. Part 1 is about successes, luck and one major mistake. I give a minor take home, but leave the major conclusions to Part 2

Part 2 is an overview, a suggestion of the best ways to build a portfolio slowly, a shareholder’s view of investing in Australian banks (which is also relevant to investing in banks anywhere), some conclusions and final take homes.

Neither parts of my experience give a prescription of how you ought to invest that information was contained in 1 Basics and 2 Value Investing. I did not fully understand the answers to value investing and to being a contrarian at the beginning. Although I quickly grasped the principles, it took me years to really understand them and to understand where I’d gone wrong. Hopefully the nuts-and-bolts approach: outlining what I experienced and where I went wrong, will help you to avoid some of the things I went through and to concentrate on others.

When I began to do some statistical analysis of my share experiences, I began to get depressed at the shenanigans I went through in the first phase of my share investing. Some of my minor losses early on were through stupidity and hubris.

Four companies went bust. But, my one relatively major loss was later on, at the time of the GFC, through listed property trusts (called REITs — Real Estate Investment Trusts — in the USA). This was partly a black swan event, but there were also signs that I ignored and I was to blame too. I only had three REITs investments left by 2007 but they were still substantial enough for me.

I can’t remember why I became so heavily involved in REITs. It began I think with my adventure into managed investments with my mother (which I repudiated in 1 Basics) and perhaps because it was a way to diversify into commercial property (which I reject below).

Fortunately, on re-reading Hagstrom (see 2 Value Investing), I was heartened to find that Warren Buffett made mistakes too, covered by Hagstrom in detail. Mistakes are inevitable in investing in shares. But, it is the systemic mistake, my major error outlined below, rather than the losses above, that should have been avoided.

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