How I lost more than £200,000

Harvey Jones lost more than £200,000 by timing his financial decisions badly. Here's how you can learn from his mistakes.

Timing, they say, is everything, and I've squandered a lot of worry and money trying to apply that dictum to my own personal finances.

My colleagues at our sister site, The Motley Fool, insist that you should never try to time the market, because it's a poor strategy, and just too damn difficult. And of course they're absolutely right. But boy, isn't it tempting?

At least, I've been tempted. Regularly.

No gain, all pain

My first attempt at timing the market cost me, ooh, around £200,000. Tax free.

[Brief pause while author weeps a little and shouts at girlfriend, whom he holds partly responsible...]

It was autumn 2003, my girlfriend and I lived in a three-bed Edwardian terrace in south-east London, and she was agitating to move to the countryside.

I finally caved in, and using my professional financial nous decided the housing market had peaked, and it would be a great time to sell up and rent for a while until prices fell to more sensible levels. Then I would swoop and buy a country estate or something.

Two years later I was still renting, and a friend kindly informed me that my old house was back on the market and maybe I should go online and see how much it was selling for.

Sell, no buy, er sell

Battered but unbowed, I decided that the credit crunch was the ideal opportunity to brush off my proven market timing skills. And to be fair, I did slightly better, selling £12,000 worth of ISAs in 2008 when the FTSE was at 6100, because even a fool could tell it was on the way down.

Brilliant, I'm a genius, I thought, conveniently ignoring earlier evidence to the contrary.

When the FTSE hit 4800 I decided markets had flattened out, and chucked all the money back in. As you know, they kept falling.

I spotted the "bottom" of the market on several subsequent occasions, buying more shares at 4400, 4200 and 3800.

When it hit 3500 I convinced myself it was going to breach the 3000 mark, and I would sit tight until then. Immediately, it rallied.

Was that the bottom?  Don't ask me, I clearly haven't got a clue about these matters.

My decision to sell a chunk of my portfolio did save me around £1,000, which is something, I guess, although it still leaves the master of timing down by £199,000.

Greed isn't good

My unerring failure to get my timing right nearly bankrupted me when I decided to apply it to spreadbetting on daily movements in the FTSE 100.

And it broke my heart when I found myself the proud owner of a £140,000 mortgage on a house in Norway, and decided to start timing my currency transactions as well.

A few years ago, currency service HiFX quoted me a fixed monthly rate of 12 Norwegian krones to the pound for two years.

Nah, I thought, I would chance my arm and buy lump sums of krones at the spot price whenever the pound surged ahead.

That decision cost me my arm, and a leg.

Within a month, the pound had fallen to 11.3 krones, and within three months, it was at 9.9.

In February 2009, HSBC predicted that the Norwegian was set to be the world's strongest currency. Whoopedoo. My pounds were then worth just 9.15 krones - and falling by the day.

That decision cost me another... no, I can't bear to calculate it.

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Timing isn't on my side

The moral of these various stories is clear: timing the market is almost impossible, at least for me.

Who would have thought, when I sold my house, that the era of cheap money and inflated house prices would continue for another three years?

Or when the FTSE had fallen almost one-third to 4800, that it still had so far to go?

Or that the once-mighty British pound would be brought low by the humble Norwegian krone?

Markets don't move in rational, predictable ways, and nobody can predict where they will go next, as any analyst or economist who tries to forecast the future will quickly prove.

Wise after the event

So what lessons can we learn from this?

• Don't try to be too clever, because the chances are you're not.
• Nobody knows what will happen next, so don't put your faith in forecasts.
• You can't call the bottom of the market. Or the top, for that matter. Or where it might be in the next two minutes (if you don't believe me, try spreadbetting currency pairs).
• If you're quoted a good price for something, as I was for my Norwegian krones, take it, don't get greedy and try to hang on for even more. You will never achieve the best possible price for anything, except by some happy accident.
• Accept that markets will laugh in the face of even your wisest judgements, and limit your exposure to their cruelty.
• Finally, it is generally wiser to buy small, regular amounts of an asset, than try to second guess the future, in the vague hope of making a one-off killing.

Time's up

So am I cured of my addiction to timing? I thought I was, until I realised that I was still holding off from fixing my variable rate mortgage, in the hope that fixed-rate deals are set to become even cheaper.

Please learn from my mistakes, because it's pretty obvious that I won't.

This is a classic lovemoney.com article which has been updated for 2010.

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