When I started investing back in 2019 I had just started uni. Several start-ups were fundraising and 2 caught my eye so I invested a big chunk of my life savings into them. When I say big chunk I mean almost everything. I had 2 grand to my name and invested Ā£1,850 of it into these 2 companies.
Letās just say I hadnāt come up with an investment game plan nor did I fully appreciate what I was doing. But, after having done some research along with meeting the 2 founders of one of the companies (travelling 2+ hours to meet them!) I was sold. They were ambitious with a massive helping of humility. They thought outside the box and weren’t afraid to challenge the status quo. They were hugely innovative, creative and precise. Anyway, after meeting them I knew that I wanted to be a part of their journey. So I didnāt flinch after investing close to 50% of my savings with them.
These guys were the founders of a British watchmaking brand and the other start-up was a fintech biz offering commission-free trading, geared towards the younger gen. You see why I was sold?
But I broke the cardinal rule of investing: I was super concentrated. Even thatās putting it mildly! I literally invested (almost) all I had on 2 small companies. But, fast forward 4 years and one has doubled in value (only on paper, I know!) while the other went up 10X at its peak. Though I suspect Iāve made 4X my investment as fintech valuations have come back down to earth. Neither have gone belly-up. So far, so good! Fingers crossed.
Anyway, now that I was practically broke (not a recipe you should follow), I started my finance degree learning about financial crises (namely ā08) and all sorts of other stuff that I probably shouldnāt be boring you with! Then, in March 2020 we came head-to-head with a health crisis that brought the stock market to its knees.
The Dow Jones fell nearly 3,000 points on 16 March 2020 marking the biggest single-day drop. Ever! The S&P 500 bottomed a week later, losing 34%! In other words, it was the sale of a generation. And I had zero cash since it was tied up in my start-ups that are illiquid.
In November 2020 I was finally able to invest in the stock market but, as you know, prices had staged most of their cool recovery by that point! Safe to say I felt the pain of regret. Of not having even a small amount of cash on the side!
But, in hindsight, I am glad I invested in those companies. Now, I am not in a position to be able to invest in a super-risky biz with a high chance of failure. The harsh reality is that more than 90% of start-ups fail. Plus, I need to have access to my money in 10 years or so and as you know, these ventures are as illiquid as they get! I literally cannot take my money out until a) the company gets bought out or b) the company goes IPO. So I had to watch as companies lost their value, whose assets were worth more than investors were willing to pay for them.
I was in a different position back then. Granted, I got overly excited and didnāt think of the longer term (bad) impact of me being left behind with no cash hand. But Iām glad I went for it because I canāt afford to have more money tied up in start-ups. I learnt a big fat lesson to always hold some cash on hand.
In life, one of the worst feelings is regret. We regret the things we donāt do over the things we do do. And not keeping cash was a regret of mine when markets nosedived in March.
So, ever since then Iāve made a conscious effort to hold more cash for investment opportunities. This is not to be used for spending or emergency funds. Nope. Itās for investments only! Because you know how the universe works; when a cracking investment comes up that’s when your bank account is as dry as a bone.
Oh, btw – fast forward a couple months and I invested loads more in a handful of start-ups to ādiversifyā! Youāll be glad to hear that Iām done with that kind of investing now and my focus remains on the stock market! Maybe Iāll dive into that in another blog.
Thereās a risk (and reward) component to every decision. Before you dive right in, weigh up both sides. Give equal weighting to both of them! More risk = more reward but it also means more risk. For me, the risk of start-ups was a) >90% fail and b) theyāre illiquid. I have zero access to my money for ages. Itās stuck there till it aināt.
Make sure youāre aware of the risks and more importantly, that youāre okay with them.
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment
Knead Your Dough 