Shownotes
BIO: Andrew Woodward is the founder of The Investor’s Way. He is on a mission to change the financial lives of 1,000,000 people and believes everyone deserves to know how to manage their money for better money outcomes.
STORY: Andrew invested in a strategy that seemed to work pretty well. Then he decided to add leverage without first understanding how it would work or affect his investment strategy. Andrew lost the money he invested.
LEARNING: Understand what you’re investing in before introducing leverage. Learn how to manage your wealth because you can’t rely on other people to invest your money.
“Nobody is going to care more about your money than you. Learn how to do it and secure your financial future.”
Andrew Woodward
Guest profile
Andrew Woodward is the founder of The Investor’s Way, a former Chartered Accountant, Chartered Secretary, and Company Director, who now teaches people to take control of their money and learn how to invest it, without the need for expensive advisors, so they can build a secure financial future.
He is on a mission to change the financial lives of 1,000,000 people and believes everyone deserves to know how to manage their money for better money outcomes.
Worst investment ever
Andrew happened to go to one of those overhyped investment workshops and spent three days in a room with people getting amped up about investing. By the time he was leaving the workshop, he believed these people were the best investors in the world, and he was now one of them.
Getting introduced to The Magic Moo Cow investment strategy
At the workshop, Andrew learned this strategy called The Magic Moo Cow. He believed it was going to be the absolute best investment strategy anyone could ever run into.
The strategy basically involved buying a stock then wait a little bit for it to go up. Then you introduce options into the equation and then buy a put above the price that you bought the stock. Then every month, you sell calls and collect the premium. No matter what happened, you are always going to make money. If the stock goes up, you make a profit, and if it goes down, you’re covered by the put.
It all looked fantastic, and so Andrew did it. He did it for a while on his own, and the strategy was doing ok.
Adding leverage to his investment
One day Andrew got an email from the promoter of strategy saying that, for a few select people, he wanted to offer them a product that would do all the hard work for him. Andrew thought this sounded like something that would introduce some leverage into his investment and earn more profit.
Andrew entered into an arrangement that enabled him to leverage his investment in the Magic Moo Cow strategy into about $100,000. He had to put down $5,000 only to leverage to $100,000.
Ignoring the fine print
Andrew never read the fine print because this was a guy he had built some trust with. He simply relied on the advice he got when he made that investment.
For the first few months, everything was fine. The investment was doing what it was supposed to do. There was only one problem; a major bank that was providing this product. When the market experienced a major meltdown, the product was designed to move back into cash. So because the stock had dropped so much, the bank sold most of the stock and put it back into cash.
Difficult to get back in
The mechanism that the bank designed to get back in when the market was ready was so restrictive that the ability to make your money back, irrespective of what the market did, became almost impossible.
Very quickly, Andrew started seeing that what he put in and the value he’d leveraged to it had dropped dramatically. Also, there was no stock to write calls against or to buy puts for. So he was pretty much just sitting in cash while the stock market was growing.
Customers started complaining, and the product promoter approached the bank and negotiated a way for the product rules to be changed to enable people to at least be able to get something back on their investment. After a few years of negotiating and watching this investment pretty much slowly die, Andrew’s $5,000 investment became something like $500, making it his worst investment ever.
Lessons learned
Understand what you’re investing in
Make sure that you fully understand your investment. Should a strategy be introduced into it, ensure that you fully know the rules and how the system is going to work.
Don’t introduce leverage to an investment you don’t understand
It is very risky to introduce leverage to an investment that you don’t understand. Leverage is a great thing when it’s working for you. However, it only works when you fully understand how your investment works.
Invest in yourself by learning how to manage your wealth
You just cannot rely on other people when it comes to investing your money. Be knowledgeable about managing your wealth so that you can do simple things without getting caught up in complex structures and complex products. It does not have to be overly expensive to get to a position where you can manage your money yourself for the long term.
Andrew’s takeaways
Not all investment strategies can be implemented
Many of the investment strategies out there can’t consistently be implemented. Therefore, evaluate your investment strategy of choice very carefully.
Read the fine print before investing in bank products
Banks love issuing products because they are moneymakers. Sometimes these products have very complex structures. Understand the fine print well before you invest in these products to protect yourself.
You have to be the primary caregiver of your money
Nobody is going to care more about your money than you do. Hence, learn how to take care of your money instead of paying someone else to do it for you because they can’t do it forever.
Actionable advice
The next best time to start investing is right now. So do a little bit of learning, and then just start and continue learning by doing.
No. 1 goal for the next 12 months.
Andrew’s number one goal for the next 12 months is to get version three of the Investing Boot Camp launched and into the hands of as many people as possible. He believes it’s an opportune time for people to think about where their money needs to be and start taking some action. The Boot Camp is a great way to get access to him and everything that he has produced.
Parting words
“I hope that the listeners have learned something from my mistakes so that they don’t make the same ones.”
Andrew Woodward
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Connect with Andrew Woodward
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points