A new monthly series on what thirty years in fund management has taught me, about markets and about life.

I have been in fund management for over thirty years. I’ve decided to write a monthly blog about my experiences and learnings in the investment industry, and also about what I’ve learned from life more generally. I believe I have good judgement, but only because I have experience, and that experience comes from mistakes, of which I’ve made plenty. Reading my learnings won’t stop you from making mistakes of your own, but it might help you avoid the ones I made. So, on a monthly basis, I’ll write about 750 words, split roughly 50/50 between personal learnings and professional insights.

Personal Learnings

First: there is a great deal of power in simply not responding. Whatever power you had before responding, you generally have less of it after. Think of life as a game of chess. Your opponent cannot move until you have moved, but once you make your move, you hand the power to move back to them, and it’s difficult to know in advance how they’ll respond. Humans tend to be overconfident in their ability to predict the future. Professional negotiators will tell you that the most difficult people to negotiate with are those who simply don’t respond. So when you’re in a difficult position that seems to cry out for a reaction, remember: sometimes the best thing to do is nothing.

Second: be open to good advice, especially early in your career. It’s often said that advice is what you ask for when you already know the answer but wish you didn’t. But if someone takes the time and energy to offer you an insight, be open to hearing it. Ignore well-intentioned input often enough, and the people offering it will eventually stop trying to help you.

Finally: a mistake is only permanent if you don’t change something. And if you don’t change anything, don’t expect anything to change. If you get on the wrong bus, it doesn’t matter how long you stay on it, you’re unlikely to reach your destination. So the moment you realise you’ve made a mistake, take some action, so that the outcome that follows is a different one.

Professional Insights

Perhaps the most important thing to know about fund management is that position size is everything. You can be wrong a lot and still survive, provided you never let a single position get excessively large.

I was recently on a Mediterranean cruise, and there was a Texas hold’em tournament on board. I made the final table and was dealt two aces down. The flop brought a third ace, three aces in the first five cards. With five other players still in the hand, my win likelihood was somewhere between 85 and 88%. I went all in and lost to a flush (the odds of that happening are roughly 4–6%, so I was unlucky, but not impossibly so). The point: in investing, you can never go all in. Anything can happen. As it did to me.

Second, bank a portion of your gains. Volatility has increased significantly over my career. If you don’t sell some of a position when it runs up, and it later retraces, you’ve added no return but added materially to the risk in your portfolio. Take some money off the table when the market lets you.

Finally, for this month at least, recognise that you will make mistakes managing a portfolio. But the moment you see that your original basis for the investment isn’t panning out, exit. Staying in anyway is what we call “thesis drift”: the original thesis didn’t work, and you’ve since invented a new reason to stay in the trade. There’s a joke in fund management that a long-term position is just a short-term trade that didn’t work out. Don’t fall into that trap. That’s also happened to me often enough.

I’ll be back next month with the next set. If you found this useful, subscribe so you don’t miss it.

#FundManagement #InvestmentInsights #AllWeatherCapital #AssetManagement #InvestingLessons #FinancialMarkets #ThoughtLeadership