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Expensive lessons: The time my family Nuix'd themselves

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It all started with a big win.

Fortescue had caught my mum's eye. She'd read that China was going to build its economy out of COVID through domestic construction. Building takes steel, and steel takes iron ore, she deduced.

"And the big iron ore mine in Brazil, Vale, was having some problems after that tragic dam collapse, so maybe China would prefer to ask for some of our iron ore?"

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So in she bought at about $18 last August, and watched as the price climbed to $26 in early January before coming off to settle at around $23.

I was more than a little impressed by this. My mum, who until now had shown precious little knowledge or interest in investment finance, had read the macro winds of change and backed a beneficiary of it.

She had a hot hand and was primed to go again.

My brother, meanwhile, had watched her Fortescue success from the sidelines, eager to jump on the bandwagon.

At this point, I thought it prudent to let them both know that while buying single companies offers the prospect of high returns, it also risks huge losses due to concentrated risk.

"It's like putting everything on black," I tried to explain in language they'd understand.

A safer way to go, I proposed, was to go for an indexed ETF. You still get exposure to the market but with free diversification.

"Just like a bag of mixed lollies," my mum replied. "If you don't like the taste of one of them, there will still be others that will make the bag worth buying."

"More or less," I agreed.

They listened intently, at least I thought they did.

Months later I found out that they'd decided to put it all on black, again, by buying shares in investigative analytics company Nuix, last year's headline IPO.

"It was the big new thing, and I didn't want to miss out," recalled my mum.

Such was her conviction about Nuix that she advised my brother to follow her lead.

"She told me it was going to be the next Afterpay, and that I needed to get in now because 'they're going like hot cakes,'" he laments.

As we all know, Nuix fell off a cliff when they missed their prospectus profit forecasts early this year. This has since been followed by reports of company infighting. Two law firms that specialize in class actions, Quinn Emanuel and Phi Finney McDonald, are now investigating the debacle.

Things were not going well for my family of newfound investors, but that wasn't the end of it.

My brother, in all his wisdom, decided to double down; this time on my father's advice to "average down" and buy new shares.

"It's a good company, I have a mate who works there," was the fatherly advice.

The whole experience has been a hard pill to swallow, more so for my brother.

"I took the advice of one parent, which screwed me, then I took the advice of the other parent, which also screwed me."

The whole episode shouldn't come as a surprise. A 2019 report from the Australian Securities and Investment Commission (ASIC) found that 31% of us get financial advice from friends and family.

There is a good end to this story - both mother and brother have figured out that picking individual stocks is a mug's game. It's ETFs all the way from now on.

"I'm not discouraged, Dave, I view it as an expensive lesson, and I won't make the same mistake again," says mum.

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David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
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