A Collection of Regrets

Earlier this week I was chatting on Twitter with some folks about my generation and homeownership and mentioned that I regretted buying our “starter home.” This sparked some thoughts about regrets, financial mistakes I’ve made and things I would change if I could go back in time and do it again, at least from a financial standpoint.

The biggest one personally is the purchase of our first house. Now, looking back, the timing wasn’t great. We bought in 2008, after prices had started to fall in Denver but far from the bottom. We did get the $7,500 first time homebuyer credit “loan” (it had to be paid back over time with our annual taxes). But in hindsight, we bought because we were tired of renting but didn’t really love the house or the location or the neighborhood. Financially it was probably a wash, we basically broke even at closing when we sold the house after 4 years and got to keep the remaining part of the $7,500 tax credit since we didn’t make any money owning the house. We also made a bit of money investing the $7,500 tax credit. But in retrospect it was a bit silly to buy, since we knew it wasn’t going to be a long-term house for us. We very likely would have been better off to keep renting until we were sure what we wanted and we could afford something that we would live in for the long term. It was certainly a time where the emotional side of the decision overrode too much rational thought about owning a home. But I suppose that is how you learn these things.

In a spirit of camaraderie, I asked several industry colleagues if they would share some personal reflections on their own financial regrets, so many thanks to Wes Gray, Sam Lee, Tadas Viskanta, Morgan Housel and Ben Carlson for chipping in on this one.

Wes Gray (Alpha Architect)

For nearly 15 years I traded deep value penny stock type ideas with a decent amount of turnover. We’re talking 10mm market cap companies — sometimes smaller. Seeing a limit book with 10k shares @ 5cents and 20k shares @ 10 cents? No problem. I’ll buy 50k @ .075 and split the difference. The stock is worth 20cent, so what’s a 25% b/d spread gonna do in the long-run?

Long story short, I made a lot of money, lost a lot of money (still riding a carry loss forward from 2011!), pissed a lot of money away on taxes and frictional costs, and learned a lot of lessons that define my current approach to investing.

In the end, I would have arguably been way better off following a simple low brain damage approach…

Ben Carlson (A Wealth of Common Sense)

I wish I would have started saving right out of college. I waited a few years to open my first retirement account and those years are huge on the compounding scale. Even small amounts every month would have been helpful.

Morgan Housel (Collaborative Fund)

There’s so much hindsight bias in this, and I don’t consider myself a stock-picker, but I remember the first time I discovered both Chipotle and Tesla thinking to myself, “Wow, this is something special. This is different. You can feel it. I’m going to buy shares when they IPO.” And of course, I didn’t. Both companies are up 10x since their IPO’d. I don’t recommend individual investors attempt to invest this way but I still wonder why there was such a disconnect between feeling great about the companies and not doing anything about it.

Tadas Viskanta (Abnormal Returns)

1. Only a few things that you buy will provide you with any measure of lasting happiness. The challenge is that it is difficult to identify these beforehand.
2. I have spent a lot of time in search of some sort of market-beating system. I have yet to find it, but the process got me to where I am today.
3. I briefly started writing about investing online back in 2000. I wish I had stuck with it.
I didn’t buy a house in 2012. It was a no-brainer–mortgage rates were extremely low, housing prices were recovering from their nadir, and the rental yield on a house comfortably exceeded the cost of servicing a mortgage, paying property taxes, and regular maintenance. Moreover, I knew that housing prices exhibited a lot of auto-correlation–they tended to trend–and so I was reasonably confident housing prices would continue to increase as long as we didn’t enter into another depression. At the time, I was editor of Morningstar’s ETFInvestor newsletter and wrote an email to all my subscribers encouraging them to buy a house if they were in a position to do so.

The excuse I made to myself for not buying a house was that I was not confident I would remain in Chicago in the near future. However, the odds were so stacked in my favor at the time–and I knew it then–that even if I had moved across the country, the hassle of renting out the house would have been well worth the effort. It was pure laziness to not buy a house and it easily cost me over $100,000 in foregone price appreciation and marginal savings over renting.
Rationally, I know that opportunity costs are no different than actual costs that come out of my net worth, but I find it hard for myself to get worked up over this mistake.
So there you have it. Even those of us who profess to be financial wise-guys (sorry about the lack of gals, it is notable) are prone to ignoring good decisions when it comes to our own finances. Not that such a fact should surprise anyone.
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