A friend of mine made a remarkable finding.
She was writing a thesis for her doctorate in psychology. As part of that process, she prepared a graph of her life. It mapped her happiness and satisfaction with her life over time.
What she noticed and shared with me changed my approach.
Mostly, the line on her graph showed a slow but steady line upwards, with minor peaks and troughs.
However, there were some blips. Times when the line dropped but then rose steeply upward sometime after. Those were the times in her life when she took significant risks and made changes.
Further analysis revealed that the initial drop was caused by the fear and anxiety of taking a risk and making a change. But afterwards the risk seemed to pay off, delivering a significant boost to happiness.
‘Well, the risks you took paid off,’ I said to her.
‘No, that’s the thing,’ she countered. ‘Many of the risks and changes I made didn’t work out at all, at least not the way I expected. What did happen, though, is that I developed as a person. I became braver and stronger and understood more about what I was doing.’
And I thought about my own path. Mark Twain was right:
‘Twenty years from now, you will be more disappointed by the things you didn’t do than by the ones you did do.’
How risk can pay off
I started investing in the NZX at 17.
That’s the best time to begin investing. Young people are fearless, and time is on their side.
But by the time I reached my 30s, married with kids, I was a much more cautious investor. I preferred cash and modest property. And I missed out on many of the fantastic opportunities the past decade’s bull market presented.
What you fail to factor is the opportunity cost of not taking calculated risk.
Let me give you an example.
About 10 years ago, you could pick up Auckland International Airport [NZX:AIA] shares for $1.53. At the time of writing, it trades for around $7.70.
You put $100,000 in a term deposit at the bank in 2009. From 2009 to 2019, the average term deposit rate has been just under 4% per annum.
Assuming the magic of compound interest, that would have turned $100,000 into $148,000.
Or back in 2009, you buy 65,359 AIA shares @ $1.53.
Over the past 10 years, AIA has returned an average of 3% per annum in dividends. Based on a median share price of $4.37 over the period and with dividends reinvested, you’d end up with 77,054 shares.
At today’s price, your holding is worth nearly $600k as opposed to the less than $150k you would have in the bank. That’s a decent house deposit — or better still, a tidy holding income of around $18,000 per annum while you wait for more of Auckland’s growth.
And you don’t need to be Warren Buffett to see that the airport — a business based on substantial land holdings — can be a risk worth taking in a fast-growing city.
The rise and rise of Auckland Airport. Source: Auckland Airport. Note: Figures above are gross, exclude tax and assume continuation of the dividend policy.
The courage to take more risk
When I learned of my friend’s work, I started taking more risk.
I turned 40. Life was comfortable. Too comfortable in NZ.
Fortunately, my wife agreed.
So we took up an opportunity in Europe and moved countries indefinitely. We put the kids in school. We bought a property. We made new friends and a new life. There was no turning back.
It became terrifying.
The pound collapsed when the UK voted to leave the EU. Unbeknown to us at the time, the building our property was in needed major repairs. My wife’s last job was hell. The kids hated school and were very unhappy. One night in France, rioters torched a dozen cars outside. We got stranded between British airports. And the coffee was so bad I thought I’d end up on crystal meth.
OK, I’m joking about the coffee shops.
But it was filled with opportunity. I started investing in global markets in a more significant way. I worked with some of the most innovative funds in the world. As a family, we bonded through the difficulties.
Now I have a stronger faith. A stronger marriage. And I’m a stronger investor.
How do you put aside your fears and become a better investor?
The best thing you can do is develop an ‘Investing Mindset’. Hopefully you won’t have to move your family half way across the world to find this.
The mindset of a successful investor has a few traits:
- Not afraid to try things
- Not afraid of spending hours doing the homework
- Not afraid to bet on your own convictions
- Not afraid to ask for help
- Not afraid to lose money
- Not afraid to make money
- Not afraid of what others think
- Not afraid to be wrong
I encourage you, if you haven’t already, to start investing in a way that is right for you and your family.
Could lead to some good spikes on that life graph…
Analyst, Money Morning New Zealand
Simon Angelo owns shares in Auckland International Airport Limited [NZX:AIA] via wealth manager Vistafolio.