Thanks for that MsRichLife.
What a nightmare, I think you know the real issue here was leverage, not shares per se (lack of stop loss/poor advice a significant contributor!). If you had not leveraged with margin loans, say just taken out line of credit against your IP's you would have been able to hold on and weather the storm. The ASX200 accumulation index (growth and dividends reinvested) is at an all time high, as opposed to the ASX200 index which is nowhere near where it was. Vanguard Australia recently included this in one of their newsletters ;
What a difference five years can make. Contrast, the fortunes of the S&P/ASX200 Index (prices only) and the S&P/ASX200 Accumulation Index (share price plus dividends) over this period.
Five years ago on July 16, 2009, the S&P/ASX200 closed at 3995.6 points with further to fall in the depths of the GFC. Move forward to July 16, 2014 when this index closed at 5518.9 points - a rise of 38 per cent.
By contrast on July 16, 2009, the S&P/ASX200 Accumulation Index closed at 27,332.5. And move forward again to July 16, 2014, this index closed at 47,043.6 - a rise of 72 per cent.
In short, the accumulation index passed its pre-GFC high almost a year ago and hit an all-time high this month. Meanwhile, the S&P/ASX200 (price only) is still way below its pre-GFC high.
If you had held, you wouldn't have lost your money, and now would be significantly ahead. (say in the case you held ASX200 index ie. STW or similar, and had LOC against IP equity - no margin call).
The underlying message here is understand that shares of stock are not 1 dimensional assets, they provide income, and ideally, capital growth. In Oz due to dividend imputation, pay out ratios are higher than just about anywhere else....but here is the big secret ; the entire industry doesn't want you to buy and hold shares and take the dividend reinvestment plan that many companies offer......why? how can they make money from you if you don't keep buying, selling, paying for advice, subscribing to newsletters, attending seminars, watching CNBC etc etc.
With shares you have to take a long term (20+ years) view, and embrace volatility (essential in the capitalist system) as a chance to BUY more. Stock picking yeah you can certainly come undone there...but if you are diversified enough (ie. index or individually constructed portfolio) and you can hold on through the troughs I believe that you will be well served in the future, as in the past. Provided you don't try to time the market, (ie. dollar cost average - and force yourself to BUY) and avoid selling at all costs and reinvest dividends.
I love this bit from Peter Thornhill, from the darker days of 2011 ;
I'm not going to bother, but consider this possibility. The share market ultimately reflects the endeavours of the human race, for better or worse. If you therefore believe that human endeavour is not dead then for heaven's sake, buy with your ears pinned back; we are not going to go back to living in caves. http://www.motivatedmoney.com/mysay.php?iid=w5awkrn9fp
Is anyone a more active investor or do most people buy index ETFs and just hold?
I would like to save up some cash over the next 3 - 4 years then enter the share market with the idea of actively trading (not day trading) and learning about options to make some extra income off shares. I'm also interested in investing directly into US shares.
Thanks for sharing your story MsRichLife. Its great to see you have come out on top after what must have been an extremely stressful time.
I buy and hold, but a combination of LIC, Direct shares and ETFs. There are some businesses I "like" over the long term but I do not intend to sell these shares unless I change my view on these businesses. So I have no intention to "trade". Essentially, we are talking about Investment vs. Speculation. Take into consideration tax and transactional costs of churning, oh I mean trading :) and in my view its just a punt. Despite what the industry says.