The first mistakes

Four beginner's mistakes. They all look alike: each one feels like doing the right thing.

The first. Twenty lines in the portfolio, to be sure of missing nothing.

Six global equity funds. Six lines on the statement.

But not six bets. One bet, bought six times, and each one takes its fee.

Six overlapping lines are worth one line. And you pay the fee six times.

The second. Watching, and reacting. Say once a month.

A round trip on two thousand euros: five euros of brokerage to buy, five to sell, six of spread.

Sixteen euros. Taken from your money, not from the gain, and paid even when you were wrong.

One hundred and ninety-two euros gone in costs, without a single decision having to be wrong.

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Nine point six per cent of the position, in one single year.

The long-run return on shares, everywhere in this programme, is seven per cent a year.

You are spending more than the market is meant to give you.

That is not a figure of speech. It is nine point six against seven.

The third. Looking. A stock market year holds two hundred and fifty-two sessions.

At seven per cent a year, one session earns zero point zero three per cent.

And an ordinary session moves about one per cent. Thirty-seven times more than it earns.

The trend is there. It is simply invisible at the scale of a single day.

Looking every day is not keeping informed. It is giving yourself two hundred and fifty-two chances to act.

And you now know what each chance taken costs.

The fourth, and the dearest. Starting with the complicated.

One hundred euros of yours, five hundred euros exposed. That is leverage of five.

Zero. And there is no catching up: you are no longer in the market when it climbs back.

Twenty per cent is not an extreme scenario. It is less than the autumn of two thousand and eight.

Leverage does not multiply the return. It multiplies the speed at which you reach zero.

Structured products promise guaranteed capital. The guarantee is paid for in upside given up.

Four mistakes. None of them takes talent to avoid, only knowing that they are there.