A bit of personal financial history

I don’t intend to give any financial advice on this blog. To make my point clearer here is a bit of my history, including the many mistakes I’ve made along the way.

Published:  Thursday, 24 September 2020
Author:  Daniel

I would split my financial history into 4 periods with funny names:

The dark ages

This would be the most part of my life up until I finished college. Money was never a concern for me because I didn’t have any.

I grew up in a small mining town where everybody worked at the same company. Around 20 years ago, China started to dump its surplus of raw materials on the global market. As a result, copper prices (and of other metals too) started to go down and all of a sudden Romanian mines were not profitable anymore and they started to close. From a flourishing town of 16.000 people, 10.000 skipped town in search of better prospects. The rest of us stayed and started looking for scraps. Literally.

As a child, I would spend days with my dad looking for scraps of iron, copper, aluminum, and sell them at a local collection point. In the summer we’d go looking for mushrooms, raspberries, and blueberries and sell them to local collection points. In the winter we’d go cutting tree branches from the forest and sell them as firewood to other people. Tough times.

Since almost everybody in the town used to work at the same mine, I never felt poor though. I had no comparison term. Everybody was as poor as I was, so I didn’t feel I missed something.

My parents decided I was smart and sent me to high school in a different city. They couldn’t afford my boarding fees, but the school was nice enough to give me a “special scholarship” that covered the costs. I didn’t know at the time how lucky I was. Life was giving me a big break, and because of the good education I received there I could later go to college and escape the poverty trap.

I felt a bit awkward walking with my shoes and socks with holes in them while my classmates wore the latest brands but I didn’t really care about that. Love thrills and books were my passions back then and I thought nothing else mattered.

The only financial planning I would do during high school would be the conversations with my mom asking me how much money should she give me for the week and me saying I only needed money for the bus and train fare, to reach school and come back. I knew she didn’t have any, so I couldn’t ask for more. Most of the time I would walk home the last 10 kilometers because I’ve spent the bus fare on food during the week.

As a matter of fact, for most of my high school and college time, my main focus was food. I grew up 20 centimeters in less than 2 years and my young stomach was insatiable. Even when I stopped growing, the hunger stayed. In college, I would visit friends in the student dorm and eat their leftover food from the weekly package they received from home. I would visit my uncles in Cluj just because I knew they’ll invite me to dinner.

I would do from time to time odd jobs like distributing flyers and for a while, I’d have some money in my pockets. But at that point, I’ve got so used to not having money that it didn’t really cross my mind I could get a job somewhere and have a stable income.

The spending spree

Before my last year of college started I’ve got a job as a software engineer at some small apartment company. In retrospect, money was not great, but it was 2-3 times more than I had before. Of course, I didn’t save any. I didn’t even know what saving was for.

I left my IT career and went back to school, to do my Ph.D. studies. Life as a researcher was what I wanted at that point, and a Ph.D. was the entry ticket. After almost 2 years I got fed up with the big egos, lack of funding, and pseudo-research at my university and quit. I didn’t know what I wanted to do, but I had to pay back the scholarship I received so far (because I didn’t finish my studies) so I went back to IT. I needed a job in order to pay the 6000 EUR I had to give back to the university.

The pay was great, the job was challenging and I was learning something new every day. Software engineering hit all the right buttons and 10 years later I’m still around.

For the first time in my life, I could afford stuff. I could afford to move out on my own and not share an apartment with other people. I could afford a laptop. A new phone. I could afford to go out almost every night.

My paycheck doubled in a couple of years and then doubled again. Each time it increased, it would take me about a month to adjust my lifestyle and manage to spend it all before my next paycheck arrived. Clothes, gadgets, dinners out, clubs, traveling, expensive coffee. I’d stop from time to time and try to remember that I used to get with 10 times less money than I had now just a few years back. I’d think from time to time that I’d be ashamed to tell mom what I was spending my hard-earned money on.

Tightening the belt

A few years back it hit me that I don’t need to spend all my money before the month ends. Maybe at some point, I’d want to make a bigger purchase and I’ll need funds larger than my paycheck. And I started saving up. If I had some money left at the end of the month, I’d be happy. Then those small funds started piling up. I would spend all of them from time to time on some stupid new gadget, but I’d get back to saving eventually.

It was easier to save those funds if I didn’t have direct access to them, so I’ve opened a different account that wasn’t linked to any card and put my extra funds there. In a couple of years, those funds amounted to 4-5 times my paycheck at the time. I didn’t know at the time, but today I would name that my emergency fund.

I started to realize that I didn’t need all the stuff I was buying. I was still buying shit I didn’t need, but less often than before. The trick that worked on me was to wait a few days before buying what I was looking at. A new shirt, a new laptop, a new phone, that cool robot I could program to follow a stupid line. By that time I didn’t need it anymore. And my savings rate increased from 10% to 20%, then to 30%, without feeling I was missing out on something.

I started to rediscover the beauty found in a minimalist lifestyle. I still enjoyed travel, and books, and going out with friends, but I didn’t need stuff anymore to make my life full.

My paycheck was still increasing, and my savings as well. The only problem was that inflation was eating up my savings. Slowly, but surely.

Spreading my wings

I figured out I could at least put my money in a bank deposit. I didn’t need those funds immediately, and their value would increase in time. But I chose the wrong time to save money in a bank. The interest offered was up to 2%. After a year, I could pay with the interest earned about half my rent at the time. Hardly motivating.

My short day trading career

I started looking into what other saving opportunities my bank was offering. Besides term deposits, it offered savings accounts with even lower interest rates. It also had some mutual funds I could invest in. And a trading account.

The problem was, I had to move my precious ass to the bank in order to sign some paper trail in order to open a trading account or in order to invest in one of their funds. I’m not high maintenance but I expect that if someone wants money from me, they should make it easy for me to give it to them. Walking to a bank and wait in line is not the definition of easy.

So I found xtb, a trading platform from Poland that also lets Romanians invest. It had stocks, ETFs, indices, commodities, cryptocurrencies. I didn’t know anything about any of them.

I read a bit about what stocks, crypto, and commodities were. I started to read about what trading was. Of course, when you google “trading” you only get links about technical analysis and day trading. It seemed shady to me, sort of like astrology. 2 years later, I’m more convinced than ever that you can find patterns anywhere you want and you can base your investment decisions on them with the same confidence as if you’d use technical analysis.

xtb does offer you demo accounts where you can practice trading, and switch to real money only when you feel confident you understood enough. But asking someone who just found a new toy to use first a demo account kind of feels like someone asking you to practice kissing by yourself before doing it with a real person.

So I’ve decided I wouldn’t miss 100 EUR if I started to trade with those and lose them. Stocks were expensive, but coffee or corn or aluminum were not, so I’ve started buying and selling those. It was fascinating. 100 EUR turned into 200, then back to 100, and so on. I didn’t know what I was doing, but the rush was incredible. I was spending a few hours a day earning 10 EUR. It gave me the same thrills a game would do, so it was time well spent.

While on xtb, I found what buying with leverage means. Overnight, my 100 EUR turned into 1000 EUR and I felt like I could start a new career. It didn’t matter that I didn’t know how all this worked. I bought something, waited to grow a bit, and then sold it. Easy money.

Of course, there were ups and downs, and soon all my earnings were gone. By now I was hooked. I didn’t want to start slow again with my remaining 100 EUR, so I’ve added 1000 more. A few more days and my account was worth 3000 EUR and I was thinking why didn’t I do this earlier. With higher risks come higher rewards, so I started to take bigger risks. I did read about panic sell, and that I shouldn’t do it. But it was pretty hard not to do it. When the price of whatever I was buying was really down and I only had a few money on my account, it was hard not to think about at least salvaging whatever was left there. So I kept selling when the price was low and then kept looking at how it was rising back just after I sold it. When I didn’t sell, it just went down until I received a margin call and then lost everything anyway.

I would lose like this around 2000-3000 EUR until I managed to stop and take a step back. Day trading was just not the thing for me.

I started buying instead stocks, without leverage and waited like a good boy for them to grow before selling them. Apple, Facebook, Netflix, Microsoft, Ford, Alibaba, Skechers. Whatever Google was saying that are currently the hot stocks. I didn’t know anything about valuations, financial statements, or ratios. I was just riding the wave. Motley Fool said they were growing, so I bought them. If I read an article about one of the stocks saying they’re going to tank, I sold it. They kept growing, and I kept adding funds to my account until it reached around 10.000 EUR. At that point, I started to think I should invest in something else too.

Losing big with cryptocurrencies

Everybody was buying bitcoins, and others, and xrp, and stellar, and lumens, and whatnot.

While I knew it was just speculations and the prices were artificially inflated, and we’re nowhere near moving to some decentralized currency some random dudes over the internet invented, greed got the better of me.

I didn’t want to be the only fool that didn’t ride the wave. Unfortunately, I was the last fool.

I’ve set a “conservative” goal and said I’ll withdraw my funds when they reach “only” 3 times the amount I’ve added, and waited for bitcoin, ether, bitcoin cash, xrp, monero, Cardano, and stellar to grow and cashout. Of course, in a few months, they stopped growing and the prices declined abruptly.

My initial 5000 EUR was now worth around 1000 EUR. I still keep them there, in case another crazy wave starts again. I now know more about cryptocurrencies and blockchains and I can see better why some of them might have some real value in the future.

Moving to stocks investing

Meanwhile, I kept reading more about the stock market and how it works. I read more about fundamental analysis and started to understand what a P/E ratio is, how to read a financial statement, and learned not to panic sell. I eventually moved my stock portfolio to Degiro, since it had lower transaction costs than xtb and access to more markets. I’ve made some nice profits from buys I made last December when everybody was selling like crazy. I still have some stocks that I’m waiting to buy when the price is right.

Stocks and bonds might be fun, but I was sure these were not the only investments I could make.

How I found equity crowdfunding

I was only looking for crowdfunding platforms like Kickstarter but I found something a lot better. At first Crowdcube, and then Seedrs. Investing in startups seemed interesting. It didn’t matter that those startups had little chance to succeed. I could invest 10 EUR and learn what innovative companies are doing in Europe. If some of them succeed, it would cover the loss for all those that failed.

It took me a few months until I started to grasp what their business plans and pitch decks and financial forecasts are really saying and what can be trusted from there and what is just pure speculation. I wouldn’t invest now in some of the startups I’ve invested in my first days, but it was never large sums, so nothing is lost.

I’ve also found interesting sites looking for funding.

Corporate bonds

WiseAlpha was one of the platforms I found on Seedrs. It lets you invest in corporate bonds with 100 EUR. Corporate bonds are not the safest thing to invest in, but they are one of the safer options.

Of course, there are ETFs that are based on bonds and those might also be a suitable alternative, but WiseAlpha gave me direct control to select the companies I wanted to lend money to.

Investing in gold

I found GlintPay on Crowdcube. They eventually ended their campaign without obtaining financing, but their platform was still interesting to me.

GlintPay gives you an account and a card and lets you buy gold with no commission. There’s a 0.5% fee when you convert it back to EUR, GBP, or USD, but so far the price of gold increased a lot more than that fee would amount to.

Real estate crowdfunding platforms

Yielders was another platform I found on Seedrs. It lets you buy shares in real estate properties and receive rental dividends from them.

And it opened some new horizons for me. I didn’t know I could actually own parts of an apartment and get rental income from it.

Peer to peer lending platforms

I discovered Neo Finance on Seedrs long after I was investing my money in p2p lending platforms.

Neo Finance lets you invest in p2p loans from Lithuania, and it’s a solid platform to invest in. So I’ve put money in their crowdfunding campaign and also in their loans, to keep an eye on how my investments are doing.

Equity crowdfunding was nice and I was contributing to a brighter future (or I was just inflating the tech bubble). But equity crowdfunding doesn’t offer an immediate return. You invest money and hope that in about 5 years your investment will amount to something, and hopefully more than you put in.

And while Crowdcube and Seeders seem pretty respectable, there’s a myriad of other platforms in the world that just make you raise your brow. Platforms dedicated to wine funding, whiskey, oil wells, cargo ships, yachts, robots, space exploration, wind farms, cannabis farms, orchards, organic farms, camels.

From equity crowdfunding and gold and real estate crowdfunding I jumped to the next thing I could invest in.

Finding peer to peer lending

Peer to peer lending, or crowdlending, or marketplace lending, all mean the same thing. I started with Mintos and EstateGuru because that’s what Google said when I was looking for European p2p lending platforms.

Then I read more about what p2p lending actually is, it’s history, different types of platforms, different types of loans, buyback guarantees, provision funds, collaterals, regulations.

And since I couldn’t learn too much from what others were saying, I started investing in more and more of them. I’ll eventually scale back to about 5 or 6 platforms, but I’ll give each of them about a year and see how they’re performing. I’m not after a quick win, so I don’t care that one platform is currently offering insane interest rates and my funds would sit better there instead of spreading them across 20 platforms.

Final words

My journey went from not having money at all, to spending too much, then learning to save, and finally looking to invest my funds while also making many mistakes along the way.

It will prove that some of the investment vehicles I’m using now are also mistakes. That’s for my future self to know and learn from it. For now, I think I’m right.

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