Andrew Hallam/ Financial author
RP: Financial author Andrew Hallam began investing at the age of 19 and was financially
independent before his 40th birthday. The sooner you start investing, the more you benefit
from compounding later on. Another important lesson young investors need to learn is not
to worry when market volatility strikes.
AH: When markets fall young people should celebrate. I mean this is what Warren Buffett
says, it’s much like a supermarket sale. And imagine buying perishable, non-perishable
items like cans of beans in the supermarket. And imagine that you are buying them every
single week. If cans of beans go on sale, you don’t walk into the supermarket and freak out
and say ‘Wow, the cans of beans that I’m buying every week have just gone on sale, so I’m
not going to buy cans of beans this week, I’m afraid because the price is dropping!’. That
sounds psychotic. But that’s exactly how we react to stock market declines. And that’s why
if you’re a net purchaser of stock market investments, especially if you have at least five
years until your retirement date, if you’re a net purchaser of stock market investments, you
should actually celebrate when stock markets drop. You shouldn’t be upset
RP: Fear can be a very expensive emotion, but so can greed. Andrew admits he made
mistakes — particularly during the so-called dot-com boom of the late 1990s. A painful
memory was selling a high-flying stock called Nortel, and then changing his mind and
buying it back.
AH: So I sold it on a Wednesday, I still remember this. And then on the weekend, I’m
reading the newspaper and there was this really great article quoting a wide variety of
experts who were saying that Nortel Network was going to see two hundred dollars a
share before the end of the year, so I bought it back at a hundred and twenty four dollars a
share. No sooner did I buy it back, then it began its spiral downhill. I think it got to about a
dollar a share I sold it on the way down it’s about sixty dollars a share and so broke even
but wow did I ever learn my lesson.
RP: Investors should really avoid buying individual stocks altogether and invest in low-cost
funds instead. Another tip says Andrew is to automate your investment process.
AH: So it becomes like a tax so the investor isn’t tempted to spend it because it disappears
right away at the beginning of the month and that allow people then to dollar cost average.
So, if they’re investing money when they have it as they have it and it comes into their
account. Let’s say an automatic withdrawal so they’ll set up for one hundred dollars a
month to be withdrawn from the account automatically into a diversified portfolio or into
an index fund. It takes the sting out of it because they don’t have to manually make that
purchase. They don’t have to manually take money that they would otherwise be tempted
to spend it just disappears like a tax and then it automatically goes towards building a
foundation for their future.
RP: Start early, don’t give in to fear or greed and automate your investment process. It’s the
sort of discipline that really pays off in the long term.