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Diary of a Dumb Investor: investing has bankrupted me

Morally that is. I now dream of profiting from scandal-struck banks and the ruin of people’s pension schemes.

 
Diary of a Dumb Investor: investing has bankrupted me

Only a few months since I started investing I have already compromised any principles I started with: it’s just too difficult to invest for yourself otherwise.

I said I wouldn’t put money into any of our scandal-struck, scheming banks, yet that’s exactly what I did last week when I bought into Standard Chartered (STAN.L).

Tempted by shorting

And a couple of days later, reading on Citywire about how one fund manager ‘shorted’ Standard Chartered shares before the stock market opened on Tuesday – ie bet on the shares falling after the US accusations about Iran – I thought ‘I want to know how to do that’.

Ergo I want to know how to profit from the decline of a business and the devaluing of people’s pension funds; I want to be a ‘bank robber’ as the Archbishop of York said of the short-sellers who undersold HBOS shares in the financial crisis.

I subsequently realised, after a bit of research, that it’s not the sort of thing you do on a Hargreaves Lansdown account anyway (my weapon of choice). Instead you need to get into spread betting or CFDs, perilous activities that I haven’t delved into.

That would most definitely please my critics who say I’m a gambler, not an investor. But wasn’t shorting Standard Chartered shares just an obvious thing to do, even to a dumb investor? If you hear bad news before the market opens, surely you can be fairly certain that the shares are going to drop?

So where was I? That’s it, holding shares in a company – thereby financially supporting it – that is accused of dealings with Iran.

When to sell Standard Chartered?

I can already foresee the accusations in the comments box below that I’m being wishy-washy from hard-nosed investors who think only in profits and losses. So onto another question: when do I sell? I have been agonising over this all week.

‘You aren't an investor in SC. You are gambling. SC is just the roulette wheel,’ a much more wised-up investor said to me after reading my article. That stung. I’m sticking with Standard on the basis that it’s a solid company to own, with a decent balance sheet and operating in the right markets: not the West.

And besides, the now-familiar sequence of events seems obvious to me: bank gets told off; outrage and share price fall; shares start rising again on the realisation it was an overreaction and as bank management takes action; share price gradually crawls back, at least enough to profit anyone who bought at the bottom. Hell, I probably should have hung on to my Lloyds shares.

The StanChart shares have risen by 16.6% since I bought in, making me a rare profit of £165 on my £1,000 investment. But still I cling on. The decision by the New York regulator does not seem to have garnered much high-level support – the regulator was ‘rogue’ according to an interesting piece by Kishore Mahbubani published in the Financial Times today – though whether that will make any difference to the ultimate outcome I do not know. Let’s see what happens at the hearing on Wednesday.

I’m reliably informed that buying is the easy part. It’s deciding when to sell that most amateur investors botch. I’ll reserve any further bravado until I have proved that I can successfully do both.

9 comments so far. Why not have your say?

Scroogio

Aug 13, 2012 at 16:58

"I subsequently realised, after a bit of research, that it’s not the sort of thing you do on a Hargreaves Lansdown Sipp account anyway (my weapon of choice)."

You're using a SIPP? Why are you even looking at short term gains/losses on such a long term investment?

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Rory

Aug 13, 2012 at 17:09

All this flak is more to do with American electioneering, political jobs being up for grabs in a country where even the dustbinmen are political appointees. Moreover, Washington does not want to toss mud pies at London in fear that all sorts of nasty secrets about American banks, campaign financing and overseas funding could be released 'accidentally' via British intelligence channels. Standard Chartered provided much of the financial craftsmanship that allowed Gordon Brown to claim he had saved the world from the economic abyss and HMG owes the bank a few big favours.

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wayne roberts

Aug 13, 2012 at 17:24

Sell them now? IMHO I reckon its going back to test 1100 but obviously nothing is predictable.. looks like a dead cat bounce..

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walkup

Aug 13, 2012 at 19:06

If you were really into the game, you wouldn't have put £1000 into Standard Chartered. It would have been £25,000 or even double and it would have been an in and out. A friend recently told me he had made 30% on one share over the years. So how much did he have invested? Yes, £1000. Who cares? Not me. And nor should you much. Sometimes you have to chuck the kitchen sink at it and pray it isn't a falling knife.

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Ian Phillips

Aug 14, 2012 at 00:12

If you're going to " profit from scandal-struck banks " perhaps you could tell us where Lloyds and RBS will be in, say, a months time........or any time scale you choose.....

COB

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Charles Flawn

Aug 14, 2012 at 08:41

The Banks will recover once the Euro problems have been settled, give it another 5 years + or - 2.

SC is totally different, they have been targetted for political reasons, the long term effect is likely to be very minor. Hold until they loose 10% then sell.

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Michael Peters Fenwicks

Aug 19, 2012 at 09:26

DI,

the old saying goes - markets are a shipwreck but we must not forget to sing in the lifeboats - Good On You Old Boy.

I am glad that you have matured enough to realize that a flexible attitude including rules to experiment with different segments of the markets sometimes pays.

At least life can now be a little simpler now since you have a long catalogue of misfires which have kept me and many readers busy chuckling.

However once again I have got used to summarizing you as an investor - It's so hard when you have too and so easy when you want to invest your hard earned pennies.

To say the least - attitude is a little thing that makes a big difference when our investments are maturing while every day may not be good but there's something good in every day - take the hint.

"Fortune brings in some boats that are not steered. ~William Shakespeare."

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Hilary Gowen

Aug 30, 2012 at 11:20

Or even buy the SC perpetual corporate bond and bank a yield of 7.7% for ever.

http://www.the-diy-income-investor.com/2012/08/portfolio-buy-standard-chartered.html

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Steve123

Sep 02, 2012 at 14:21

The 'gross redemption yield' on the Standard Chartered perpetual corporate bond is currently 5.56%.

I would prefer the Vanguard FTSE UK Equity Income Index Acc currently at 5.31% - it may wobble a while in the next few months, but long term I would prefer this to the SC corporate bond, in case inflation really takes off.

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