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.
In 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 learnt. Below we take a look back at the choices made by some of the investors that appeared in our series.
‘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.’
‘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.’
‘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.’
‘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.’
‘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.’
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