For more than 40 years, James Mackreides has been a private investor and fund manager
He has learned the following important lessons.
It's said that "the lesson of history is that the lessons of history are never learned." Does this also apply to investing? Both novice and expert investors devote a significant amount of time to examining charts, historical precedents, analogies, and past behavior in an attempt to uncover future trends.
Although regulators caution us that past performance does not necessarily translate into future outcomes, Baroness Helena Morrissey reminds us that "we are instinctively drawn to think that the past is a model for the future." The issue is that history never repeats itself, and even if it did, people would react differently, possibly based on earlier examples.
It is better for investors to keep in mind Mark Twain's statement that "history doesn't repeat itself, but it often rhymes" and to gather pearls of wisdom from their own experiences, as I hope I have done over the past 47 years, 42 of which have been spent in investing.
Due to my aptitude for math, I initially qualified as a chartered accountant at what is now KPMG, but I quickly left to work for Victor (also known as "Lord") Blank in corporate advisory for two years. Fortunately, I realized before he did that I was more suited to the investment industry and that I lacked the variety of abilities and character traits required in that line of work.
Investing well goes beyond the numbers.
Nevertheless, I learned invaluable lessons from those early years, most notably that, as any competent accountant knows, the key to wise investment is not found only in the numbers. As part of their "process," many investment firms use a screening system to find businesses that have strong balance sheets, high returns on capital, good margins, revenue growth, cash generation, and other characteristics. The identified stocks are fully valued because these procedures are essentially the same. Frequently, the stocks that the screens reject offer the best chances.
"When a management with a reputation for excellence encounters a business with a reputation for bad economics, it is the reputation of the business that survives" is one of Warren Buffett's early quotes that I came across. Although it sounds fantastic, management success is not always transferable between businesses. The CEO of Next, Simon Wolfson, notes that 28 of his top 30 employees have 500 years of combined experience at Next and were promoted internally.
In any business, "bad economics" is not a given. Rarely do companies fail because their business has become outdated; instead, they fail because they are unable to adapt to change or simply give up. In Australia and South Africa, where Wimpy, not McDonald's, is the top burger chain, Woolworths is still doing well. Action, a very successful European retail chain, and BandM, a UK company, both imitate Woolworths. When his rivals gave up trying to compete with Amazon and downloads, Tim Waterstone built his chain of bookstores to market dominance.
Expert investors frequently claim that they never put money into a company they don't understand. An investor covering dozens or hundreds of companies cannot compete with a committed management team, so I doubt any manager can truly understand any business they invest in. Investors benefit from objectivity, the capacity to see the big picture, and the flexibility to leave.
Investment management firms take pride in their extensive research, the number of analysts they employ worldwide, and the number of meetings they host. This frequently results in overanalysis, where a great deal of research boosts investor confidence but doesn't produce a better choice. I made a lot of my best investments based on a single insight that came to me almost immediately.
Hope is not a method of investing.
"I never buy at the low and I always sell too soon" is what Nathan Rothschild claimed was the key to his success. However, a lot of investors attempt to manipulate their choices, delaying an investment in the hopes that a share price will return to a high or low. I found it useful to assume that every share I purchased would immediately drop by 10% and every share I sold would increase by 10%. If things didn't go as planned, I would be delighted.
The adage "nobody ever went broke taking a profit" contradicts the widely held belief that "run your profits, cut your losses." It's true that selling a winner and reinvesting in a loser cost them money. Determining when to sell is very challenging. It is embarrassing to sell a share in freefall, but most people sell too soon. "Up like a rocket, down like a stick," the wags say. I occasionally top-slice holdings, but I'm hesitant to sell. But the market frequently reminds us that outstanding funds and companies don't always perform well.
The adage "The stock market can stay irrational for longer than you can stay solvent" is also widely accepted. You need to be extremely patient because, as any professional investor will tell you, it can take a very long time for an investment to pay off.
They don't say this after three or five years of poor performance, when they are questioning whether they made a mistake, but rather after it has gone well. Additionally, keep in mind that markets are irrational far less frequently than many experts think. Investment gurus are not renowned for their modesty or lack of confidence.
I learned the maxim "Cheap is not cheerful" along the way. Low-valued shares or markets (such as the UK) attract investors, but there's usually a reason why they're cheap. The simplest justification for a poor investment is affordability. This is not to disparage "value" investing, but recoverywhich is unconventional, dangerous, or unrealized potentialis the best place to find value.
Pursue growth.
Investor skepticism about the sustainability of rapid growth presents an opportunity for "growth" investments. Although it is unpopular for analysts to forecast sustainable growth above 15% annually, the top technology companies have demonstrated that it is possible. However, there are still a lot of blind alleys: businesses whose technology is outperformed by others, who are unable to capitalize on their potential, and whose big idea proves to be a fad or less revolutionary than anticipated.
Every investor must learn early on that mistakes will be made and money will be lost. The two don't always go hand in hand. Making a mistake can result in financial gain, while making a sensible choice can result in financial loss. For example, you may have misjudged the odds but were fortunate, or vice versa. Move on after learning from your mistakes.
"Opinions are like aholes; everyonebodys got one," as hedge fund manager John Angelo, one of my early bosses, used to say. I discovered much later that it was, in general, a Winston Churchill aphorism.
Johns made the point that he was not interested in personal opinions, but rather in what was going to happen and what it meant for markets. Good investors listen to all the arguments and distrust the consensus while avoiding political, economic, and current affairs viewpoints. In this way, you learn a lot more.
Road bumps.
The fact that markets rise over time is the most important lesson. Over time, the majority of bear markets and crasheswhich at the time appeared to be very seriousbecome insignificant bumps in the long road up. However, the media consistently reports on the investment gurus' narrative, which always downplays market prospects, warns of "bubbles," and forecasts impending catastrophe.
Investment professionals often joke that stories about "billions wiped off stockmarkets" and graphic magazine covers showing a lack of hope indicate that it's time to buy instead of sell. However, the UK's retail investors are more susceptible to manipulation, which contributes to the country's investment market's difficulties. Negative news sells, and optimism is not a trait of Britons.
Bertrand Russell once said, "The more you know, the more you realize how little you know," though this idea dates back to Aristotle and Socrates: "Wisdom is knowing how little you know." More than it teaches you how to invest, experience helps you deal with this.
You will not always be correct. During his tennis career, even Roger Federer only won 54% of the points he played, and many of the points he lost were due to unintentional mistakes that were likely repeated on a regular basis. A good investment can increase your money, but a bad one will only lose it once, as Baillie Gifford notes. It could hurt more to miss an opportunity than to lose one.
In 1992, I made one of my best investment choices when I accurately foresaw Britain's withdrawal from the exchange rate mechanism (ERM) and, in contrast to the overwhelming consensus, the market and economic ramifications of our exit. This set the stage for five years of outstanding achievement. All I did was note the similarities to Britain's 1931 break from the gold standard, which I had learned about in a university course on economic history.
After holding a gold mining fund for roughly ten years, selling it two years ago was one of my worst choices. I moved into an energy fund after becoming disillusioned with gold miners' shares' inability to react to the rising price of gold.
The energy fund has remained stuck, but the fund I sold did well last year and doubled in 2025. I am afraid of being whipsawed, so I dare not switch out. Experience never teaches you all the lessons you should.
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