Lessons from the past

As the last decade ended, we were bombarded with articles and tweets about the best and worst of the last decade. I am going to do my own

Blue chip

We all believed that Irish banks were “blue chip” investments when they weren’t really. Companies like Coca-Cola, Disney, Microsoft are blue chip companies. Irish banks were small cap companies, generating most of their income that has an equity market capitalisation of €85 billion. Compare this to Microsoft which has a market capitalisation of €685 billion, 8 times the size on Ireland.

Small cap companies are riskier than large cap by nature and so you get more ups and downs.


With soaring stock price and a strong dividend, just investing in a number of Irish banks is all you need. Never mind the fact that you are investing in companies that compete for the same business on a little rock at the edge of the Atlantic. There are companies that sell all over the world, 24 hours a day that dwarf Irish banks. Why not invest in them?

When the G8 meet, the US economy is bigger than the other seven economies combined. That is why a Global Index will have about 60% invested in the US economy. You need to spread your investment around different regions and different sectors. You don’t need to buy loads of individual stocks, just buy an index.

Short term house purchase

As the next wave of housing prices has risen, it is important to learn the lessons from those who bought during the Celtic Tiger. We were all told to buy a starter home that we could sell and upgrade in a few years. This while signing up for a 40 year mortgage.

If you are going to commit yourself to large debt levels that is repayable over decades, that is the timeframe you should be looking at. Ask yourself “If the housing market crashes again and we find ourselves in negative equity, can I see myself living here for longer than we intended?”.

The less we owe, the better

Irish people used to have a low level of debt compared to other nations. We borrowed money for capital expenditure, which is perfectly reasonable. We then started borrowing more money than we could afford and started to use it to fund our lifestyles. Instead of saving for our holidays or new furniture, we would borrow the money. We got out of good saving habits and got into bad spending ones.

Having too much debt is not a good thing because believe it or not, it has to be repaid at some stage.

Don’t get caught up in the excitement of huge returns

Irish Life has fund managed by Fidelity called the India Chine fund. It was launched in October 2005 and in its first two years grew by a whopping 201%. People who invested in it got really excited and doubled up in it. People who had missed out jumped in late to get the next 200% growth. What happened next is that all of the growth in the fund was wiped out in the next 12 months. All of that profit was gone. It would be another 9.5 years before the value of the fund got back to its high of October 2007. That’s a long time.

It is important for investors to understand that if an investment is capable of such meteoric growth, it is capable of falling by the same amount.

If you have any questions, drop me a line at steven@bluewaterfp.ie