My first experience in investments was when I turned 18 and my grandmother gave me a bank account with 2,000 pesos. He told me that as an adult I had to learn to manage my money. She knew I was prudent and wasn’t going to spend it.
The first thing I did was transfer that money to an investment, in the bank itself, so that it would generate some return. At the same time, I began to investigate the different options and products that were available to me, inside and outside that institution. I also spent time learning (reading books about investing).
In those years, there was not even remotely the quality of products that we have now, nor the accessibility. There was no Cetes Directo, there were no regulated online brokers and brokerage firms asked for hundreds of thousands of pesos to open an account. Practically the only alternative were investment funds, with high administration fees and focused solely on the national market. At that time there was also no option to invest, from Mexico, in global companies, not even indirectly.
This lack of options made me obsessed with always looking for the best alternatives for my money. Every month I read the investment fund supplement in El Economista to review rankings and try to be in those funds that were consistently in the top places in performance and surpassed their benchmarks. There were not many of them and some were inaccessible due to the opening amounts they asked for.
I convinced myself that doing that was smart and would make me earn more. I opened accounts in different institutions for the same reason. I even investigated multiple options to invest in funds located outside of Mexico and expand my horizons (although I did not do so, due to lack of capital). He was a very “restless” person.
What I thought was an advantage ended up being my worst investing mistake. It was not neglecting the risk, nor making impulsive decisions. Nor was it making a portfolio that was not suitable for my needs.
My worst mistake was that slow, silent wear and tear that came from my own restlessness. Having too many products, fragmenting capital into different pieces, wasting time evaluating performance, commissions, rotating my capital. All of that ended up affecting the net return on my investments.
Although I was clear that past returns do not guarantee future returns (not even remotely), I did think that statistics, along with consistency, were a sign that certain funds were
managed better than the rest. Boy was I wrong. I confused a good streak (even several years) with a sustained lead. I didn’t realize that the managers and analysts who actually manage the fund change frequently. I didn’t understand that what fund operators cared about was the volume of assets under management (the more money they manage, the more they earn) and not necessarily consistently producing market-beating returns. Making decisions based on rankings, even if they are carefully analyzed, is not a good investment strategy.
Part of the same mistake was my obsession with optimizing (or rather, over-optimizing) my portfolio. If there were six equity investment funds that had shown good performance historically and in recent years, I tried to buy them all to “diversify.” I thought that in this way, if some people didn’t do so well, it would be compensated for by the others. At the end of the day I would have the “best” six. I believed that this protected me and that it was a smart decision.
I remember when I spoke to new independent fund operators (or distributors, when they emerged) to ask about their products. I asked the right questions, so much so that some of them even sent managers to visit me at my workplace, thinking I had capital to invest. It made me sad when they told me their opening amount and my available money was not even a twentieth of it.
In short, all of this generated enormous complexity in the management of my investments. But it didn’t generate any value. On the contrary, it worked against me.
Fortunately I realized it relatively in time. The environment also evolved and indexed products began to be offered in Mexico at very low cost, such as ETFs. Initially, only “qualified investors” had access to them. Today, fortunately, anyone can buy them.
My current investment strategy is very simple and that also allows me to measure performance in a much better way. I manage a core portfolio consisting of just one very low-cost, diversified global ETF. Here I allocate 85% – 90% of my available money to invest. It couldn’t be simpler.
What do I do with the rest of my money? I use it freely in more speculative things, for asymmetric investments (much higher risk, but also much higher potential return). It’s money that I obviously don’t want to lose, but if I lost, I wouldn’t put my plan at risk. That’s why I have my central portfolio.
