High-profile fund managers reveal their worst ever investment and reflect on the lessons they learned.
Whether you are a complete novice or have been investing professionally for many decades, one thing is inevitable: mistakes will be made.
Common errors include chasing the latest hot fad, being lured by high dividend yields that may not prove to be sustainable, and ‘falling in love’ with a share that has performed well so that you’re reluctant to sell when you should.
Since the start of 2017, as part of Money Observer’s Money Maker series, we asked fund managers to reveal their worst ever investment, and also to share with our readers the lessons they learned. Below, we take a look at the choices made by some of the investors who appeared in our series.
Our 2018 interviews
Mark Barnett, manager of various funds, including Invesco Perpetual High Income:
“Worst investment was probably Yell. A reminder to tread very carefully when buying into companies which appear to offer attractive recovery potential. Sometimes these businesses are so cheap for a reason.”
Neil Woodford, manager of LF Woodford Equity Income fund:
“I’d say Yell, which I bought in 2007 and sold in 2012, was one of my worst investment decisions. What I learnt from this experience was to be disciplined in my approach to highly indebted businesses.”
Alastair Mundy, manager of Temple Bar investment trust:
"Too many to mention, and the frustrating thing is sometimes there are no lessons (we just play the averages) and sometimes the wrong lesson is learnt."
Rosemary Banyard, Sanford DeLand Free Spirit fund:
"EnQuest. I have learnt not to invest in oil exploration and extraction companies because you can’t predict the oil price, and the capital expenditure on oil wells is huge."
Harry Nimmo, manager of the Standard Life UK Smaller Companies fund:
"AIT Group, a banking software company. It was discovered that management had made misleading statements, leading to the share price falling heavily – 80 per cent in a single day. It was one of the largest holdings in the fund, and it turned out to be a poor investment. We had owned the stock for years and had become overconfident."
Neil Hermon, manager of Henderson Smaller Companies IT:
"I never had a company go bust. We’ve had things that go wrong. A recent example is Conviviality, a convenience store retailing business. It did well, then came out with a shocking profit warning this year. It had various issues, and the share price fell 60 per cent in a day. We sold it immediately – we had no faith in the team going forward. It was painful, we lost money, but a few weeks’ later it turned out they had huge unpaid VAT bills and went bust. So at least we sold it immediately. The lesson: it’s impossible to not get things wrong, but when things go wrong, reappraise your investment and take action if required."
Mike Fox, manager of Royal London Sustainable World Trust:
"BT. We invested five years ago thinking its so-called ‘quad-play’ of mobile, internet, home and cloud would gain it market share, but it didn’t work and then the fraud in Italy came to light. But learning that it’s ok to be wrong is a good lesson – it’s better to recognise you’ve made a mistake and get out of an investment than blindly stick with it."
Keith Ashworth-Lord, CFP SDL UK Buffettology fund:
"Dignity. It was an industry which was suddenly disrupted by comparison sites and I didn’t see it coming. It made me re-assess my entire portfolio in case anything else was at risk."
Praveen Kumar, manager of Baillie Gifford Shin Nippon:
"Oisix, which is a bit like ingredients delivery firm Hello Fresh. I sold it because the management drastically changed its strategy from digital-only and started opening stores. Since then shares are up three or four times. This has taught me to be more patient, as sometimes it can take a while for things to play out."
Richard Penny, manager of FP Crux UK Special Situations:
"Probably Micon, because I kept buying shares even though they were going down. It was a lesson about not investing in a business that is in structural decline. Sometimes you just have to let go. In the end, we were down by about 80-90% before we got out."
A selection of our 2017 interviews
Richard Buxton, manager of the Old Mutual UK Alpha fund:
"There have been some near-99 per cent wipeouts, but investing in cash shells is where I have been burnt a couple of times. One was a mining vehicle co-founded by London financier Nat Rothschild, which ended being renamed Bumi."
James Anderson, manager of the Scottish Mortgage investment trust:
"Not buying Apple until 2009. The lesson here is the sin of omission."
Nick Train, manager of Finsbury Growth & Income Trust:
"The most painful one that sticks in my mind was when I predicted the US economy would go into recession. It was at some point in the 1980s, and because I felt so sure it would happen I made the portfolios I was running more defensive.
"My prediction was correct, but what I got completely wrong was how the stock market would behave – it went through the roof. I learnt that the stock market and the economy are two completely different things."
Jacob de Tusch-Lec, manager of Artemis Global Income:
"Underestimating the speed and scale of regulatory change is always a painful lesson: policy-makers can be fickle and change the agenda with little warning.
"We have experienced how supposedly stable cashflow-generating companies, such as Swedish public bus operators or Brazilian utilities or Israeli incumbent telecom operators, have been run over by a regulator who changes the rules, leaving the company a paralysed bystander. If such companies also carry a lot of debt on their balance sheet (and they often do), then such regulatory change can be lethal."
Evy Hambro, manager of BlackRock World Mining IT:
"Eurotunnel warrants. The project overran and cost more than expected, and they expired worthless. Investing in them taught me a lot about “option value” and how rapidly it can erode with time."
Andrew Bell, manager of the Witan investment IT:
"Independent Insurance about 15 years ago, which went bust. Don’t buy things just because they look cheap, and make sure you understand the complexities of financial companies such as banks and insurers."