Experience is simply the name we give to our mistakes – Oscar Wilde
It seemed to be a good idea at that time.
Yeah!! After all my last investment had made good returns and my branch manager who’s more experienced and knowledgeable, also was going for it, then why shouldn’t I?
These were my thoughts when I was convincing myself to go for personal loan to invest in some penny stocks as advised to me by my then Branch head of ICICI Bank. This was 2004 when markets had just started showing some signs of recovery. Few months back only I had invested on his tip and made 20%, and this time I wanted to multiply more. Moreover being a bank employee I was eligible for concessional interest rates. So Math was looking quite exciting.
Finally my emotions played their part and I went for it. I had zero idea on stock investments and was just following my Boss’s advice. Without realizing that his Rs 1lakh were just 1% of his entire portfolio and my investments were not even from my pocket. I put my money at Rs 1.70 and stock was expected to reach at 10, that too in 6 months. That’s why, when it touched Rs 3 in 1 month I did not sell it.
After 6 months, I sold it at Rs o.40 i.e. at absolute loss of 76%….to save whatever I can.
Financial Mistake #1:
What went wrong? Was not selling at Rs 3/- my mistake which would have fetched me about 76% of Profit, or it was selling it so soon as stocks are meant for long term investments? Actually, the major mistake was taking personal loan at first place and that too for wrong reason i.e. to invest in stocks. I still wonder when i used to say that I don’t earn enough to send money to my parents back home, from where did the money for EMIs came from.
These kinds of mistakes are common when you don’t have any goal targeted and are just running after money. Generating high returns can never be a goal for anyone and if it is, be ready for such mistakes time and time again. With no goal in mind you tend to take advise from any person who you feel knows more than you. Personal finance is a sensitive and important area so one should take advise from only expert .
I took that incidence as a lesson and decided to invest wisely next time. As I understood that I won’t be able to analyse stocks, so I went for mutual funds and the first Mutual fund that I purchased was Magnum tax gain. The reason for buying this particular fund was one it was performing well and second it was supposed to give 100% dividend after 3 months, and I was told that this will return my complete investment back to me. (Read : Best mutual funds to invest in 2014)
You must be thinking that how dumb was I, but believe me story is no different with many bank employees even today.
Financial Mistakes #2:
I don’t consider investing for miscalculated dividend as my mistake. It happens, you learn with time. But the mistake was that I spent the dividend money on personal consumption like movies, clothing etc. Total dividend amount that came that year was enough for me to pre close the personal loan or two wheeler loan, but EMIs were not bothering me, so I decided to spend the money on myself. I could have even reinvested the money in the same fund to generate further returns but no. Dividend was like easy money as you don’t have to work to earn it, so we don’t value it.
By the time I resigned from bank in 2006, I was paying 3 EMIs and all 3 were of personal loans. 2 loans were taken under staff concessional rates so I had to take one more loan to clear off the staff loans before leaving the job. It was totally unplanned resignation and the only source of clearing off the loans was my wife’s salary. Fortunately my business of investment products distribution went off well and it started generating cash inflow from the first month itself. This result in overconfidence in me and I took one more loan, this time it was CAR loan. After all now I have entered “Show Off” business.
Everything was going well until Dec 2007, when due to international sub prime crises, my year and half old business under partnership went on the rocks. My other partners decided to move back to jobs as they felt that this is no longer a sustainable business. Since they also used to do some F&O transaction in their own account, and in that crises they personally had booked big losses. I survived that stage with my wife’s support and few of Mutual funds and stocks investments that I accumulated in that good phase.
Financial Mistakes #3
This phase was full of mistakes, starting with unplanned resigning from job and also getting into a business with no business plan, having no emergency fund, adequate insurances at place and with already 3 loans in my account, how could I take such decision? To make things worse, now I have one car loan also. (Read : Declutter your financial life)
When I look back at these mistakes, which after learning financial planning concepts sounds like a Blunder. Quantum wise it may look small, but mathematically has created a huge dent in the financial situation. I would say, I am into financial planning only because of these experiences.
Learnings from these experiences:
- Loans are meant to support you in your big purchases, now it’s up to you if you use it productively for house building, education or otherwise for holidays, phone or other consumer durable.
- Understand the importance of money. Every penny if used properly can support in building your financial future. There’s no easy money, you earn everything.
- You should not take any decision without planning. Your risk management should always be at place. You should have answer to all what ifs before taking any leap.
- Personal finance experts are different from bankers J
Your financial situation is the combination of every financial decision, you’ve made upto this point. Had I learned these lessons sooner, perhaps life would certainly have been much easier during early years of my financial life.
Its always better to learn from other’s mistakes.
Hopefully these lessons will help you avoid making these kinds of mistakes.
Can you relate to these financial mistakes of my life? I would love to listen your story…do share in the comments section
Image courtesy: www.freedigitalphotos.net
Very nice Post Manikaran.
It takes courage to admit one’s mistakes. Though we can’t imagine that a financial planner like you can actually make mistakes like this, but actually this is what experience is all about.
We all are victim to our behaviors and your story is a perfect example of this.
I appreciate that you share your story and help us to learn from it.
Thanks Ravi Kumar.