My biggest mistake: fund managers tell all
Even professional investors managing billions make mistakes. Some of the best tell James Connington where they went wrong
All investors, no matter how good, make mistakes. They can range from buying a stock for the wrong reasons, to reacting to short-term news and selling a company too soon. Learning from an error and not repeating it is a key part of successful investing.
Telegraph Money spoke to a number of top professional fund managers about errors they had made that stick in their mind, and the lessons that can be learnt from them. bought the stock hadn’t changed, it was wrong to sell on minor short-term issues. If you are a long-term investor, you should follow that rule and ignore the noise,” said Mr Green. Mr Coombs’ worst error came during the tech bubble. “I’ve always been reluctant to pay up for ‘growth’ companies. In 1999, valuations and hype were shocking, but eventually you think you must be wrong and everyone else is right,” he said.
He bought WorldCom, a telecoms firm that went bust following major accounting scandals. “It was a massive company – too big to fail. But of course it wasn’t, because it went bust. There was fraud involving the firm’s management,” he said.
He said that at that stage in his career, two decades ago, he didn’t have the confidence to go against the herd.
“That was my mistake – I didn’t have the courage of my convictions, and assumed that the rest of the world was right. You need to ignore the noise and have courage, without becoming too arrogant.”
He added that over-analysing a mistake and doing the exact opposite next time is another resulting trap that investors can fall into. “Companies are run by people, who you are entrusting your cash to. WorldCom reminds you that it’s about people doing the right things,” he said. otherwise known as “shell” companies. These are publicly listed investment companies that raise cash for the purpose of buying out an existing private firm, to take it public.
In effect, investors write a blank cheque to the managers of the company to go out and make an acquisition. Mr Buxton said that regardless of the management team’s experience and track record, investors should avoid them.
He said: “A pile of cash and a need to spend it will result in overpaying. Due diligence will be rushed. Blind alleys will be rushed down since there is the money there to fund them.”
He suggested that investors should stick to existing, established
‘The broader lesson is never to invest in a company you don’t fully understand’
“You should never let an ambitious management team loose with your cash. You will regret it.
The broader lesson is to never invest in a company or fund that you don’t fully understand, where blind faith is involved, or where there is ambiguity about what your money is being used for.
Mr Buxton’s fund, Old Mutual UK Alpha, is one of our Telegraph 25 favourite funds.
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