My big­gest mis­take: fund man­agers tell all

The Daily Telegraph - Your Money - - FRONT PAGE -

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’

busi­nesses in­stead.

“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.

On the wrong track? The pro­fes­sion­als ad­mit er­rors in­volv­ing Car­il­lion, bot­tom left, and Ap­ple

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