Cautionary tales: Real-life investing horror stories

From ill-timed market entries to panic-driven sell-offs, this Halloween, we are sharing real-life investing horror stories from our colleagues at Endowus. A couple of them are personal stories, but we have masked them in anonymity to protect their privacy (and dignity).

These stories are not meant to instil fear against investing. We are sharing them as cautionary tales against greed, ignorance and FOMO – some of the most common “investing” mistakes that would have been more accurately termed as “gambling”. 

Some may think that mistakes are best learnt from experience, but there are also mistakes that are too costly to bear. These stories offer important lessons on doing your due diligence, and taking on a long-term, disciplined approach towards investing.

“Learn from the mistakes of others. You can’t live long enough to make them all yourself.”

- Eleanor Roosevelt, Former First Lady of the US

A siren call to the FOMO amateur

“I started investing only 5 years after I started working, so to me, it was 5 years’ worth of lost time that I wanted to recover. 

It was also during the Covid-19 pandemic when everybody around me was talking about tech stocks, and it seemed that the pandemic and tech had really changed the ways we worked and lived forever.

I got on a brokerage platform and I remember feeling very intimidated and confused – which stock should I buy?

In a moment of greed for quick returns, I bought a leveraged ETF that targeted three times the S&P 500 returns, and it was only good for a one-day holding period.

My return came back flat, which could have been worse, but I also lost some money to platform fees. Looking back, it was definitely a risky move, and I got away lucky.”

The lesson in one sentence: Don’t be greedy, do your due diligence, and know what exactly you’re buying.

Haunted by phantom fees

“It’s not quite a horror story, but I think it’s a good yet unnerving reminder that not all financial advisors or relationship managers have your best interest at heart.

I had a client who was a retiree, and she was looking for some income-paying investments and had spoken to a few banks on what might be appropriate. The proposals were shared with her children, and they were absolutely horrified by the high trailer fees and sales charge.

Her children insisted that she make a call to speak with Endowus, and safe to say that this “horror” story closed with a happy ending.”

The lesson in one sentence: Always check the fees: they have a significant impact on your returns, and it’s also a litmus test of where your advisor’s interests lie.

He who grasps too much (candies) loses everything

“The whole time I was holding AMD stocks, I was kicking myself for not buying Nvidia stocks. I eventually sold them after prices went from $80+ to $100 and made a small gain.

Back then, I was convinced by a friend of mine that Chinese stock prices would continue to rise, especially with news about China’s reopening during Covid-19. I took my returns from AMD to invest in a Chinese restaurant stock.

Regretfully, AMD prices range around $150 today*, and I’m still holding on to the losing Chinese stock, hoping for it to recover. 

Looking back, I should have been more patient and not hop around stocks based on hearsay. I was also doing myself a disservice by applying the same expectations on two completely different stocks that were from different sectors and markets.”

Editor’s note: *Information accurate as of 17 October 2024.

The lesson in one sentence: Stock picking is difficult if you don’t have the right temperament to do so.

Swallowed by the pandemic panic

“After Covid-19 struck, a client decided to sell a 100% bonds portfolio during the March 2020 "cash dash”, even though I had reminded the client that it was in his best interest to stay invested through market cycles.

Perhaps due to the uncertainty of the pandemic and burgeoning fears in the markets, the client couldn't resist the urge to redeem the recently purchased investments. But just weeks later we saw the markets rebound strongly, and the client reinvested again 3 months later."

FYI: There are some funds that he sold that he bought back at a higher price.”

The lesson in one sentence: While we cannot control how markets will perform, we can control how we respond to markets. 

Editor’s note: The cash dash in March 2020

The widespread uncertainty and market volatility during the early stages of the pandemic, compounded by concerns about traders working remotely, led investors to prioritise cash even over relatively safe assets like Treasury bonds.

This led to a surge in redemptions from investment-grade corporate bond mutual funds. Investors rapidly withdrew their money from these funds, which in turn forced the funds to sell their assets, including corporate bonds, to meet these redemption requests. This selling pressure led to a decline in bond prices, further fueling the rush for cash. 

The haunting houses

“My dad is nearing retirement. A few years ago, he sold a house he owned (and rented to family) and reinvested it in two other properties.

Like many people from his generation, he staunchly believed that property was the best form of investment for rental income.

It turned out that being a landlord is more work and costlier than you’d expect. From time to time, something would break down and need fixes. There were also situations when tenants left the houses in poor condition and took things that didn’t belong to them, which would chip away at the rental income.

Today, he is hoping to sell these two illiquid assets, but it’s a lot more complicated than expected, and the process has been taking quite some time. We’re keeping our fingers crossed right now that there will not be any emergency need for cash, and that this would be resolved by the time both him and my mum retire.”

The lesson in one sentence: Property investments are highly illiquid and require a great deal of commitment – don’t jump into it just because many people tout it as “safe”.

The silver lining, and the silver bullets 

These stories are unfortunate, but the Endowus team shared them in hopes that others would not repeat the same mistakes. The silver lining is that investing mistakes are part and parcel to every investor’s journey, and most times, they can be corrected with education and developing a better sense of one’s temperament.

Investing does not have to be a fearful experience. With the right mindset and knowledge, it can be an extremely rewarding journey.

Silver bullets against greed, FOMO, and other investing obstacles

1. Seek clarity of thought: Are you buying a product because it truly adds value to your portfolio, or because someone else is doing the same thing?
2. Understand what you are buying: Fees, even down to 1%, have a significant impact on your returns. 
3. Leave what you can’t do to the experts: DIY investing can prove to be more difficult than most assume. The Endowus Flagship Portfolios are designed for quality accessibility to best-in-class funds, and aim to simplify investing for both new and experienced investors alike. Learn more about the Portfolios here.