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    Professional Investor Rules: Top investors reveal the secrets of their success
    Professional Investor Rules: Top investors reveal the secrets of their success
    Professional Investor Rules: Top investors reveal the secrets of their success
    Ebook188 pages2 hours

    Professional Investor Rules: Top investors reveal the secrets of their success

    By Jonathan Davis

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    About this ebook

    They are the world's best - the professional investors at the head of global investment funds and the mavericks operating from behind nothing more than a laptop and a point of view; some with millions of pounds at their disposal and the fate of companies and customers' savings hanging on their decisions, others with nothing more (or less) than their reputation and their own fortune on the line.
    What sets them apart from the thousands of other investors out there is their track record. The professional investors who have contributed to this book include multiple award winners, fund managers who have managed to double or triple investment returns every two years, as well as the heads and founders of firms with billions - occasionally trillions - under management and half a century of profits to which they can point.
    There are no better investors to learn from when making your own way in the markets, and this book is the indispensable collection of the secrets behind their success, straight from the investors themselves.
    Featuring the investing rules of award-winning experts in Asian, Latin American and Western markets, contrarian specialists, mutual fund managers and more, Professional Investor Rules is a compelling snapshot of some of today's best investing minds. No investor can afford to be without it.
    LanguageEnglish
    PublisherHarriman House
    Release dateDec 1, 2012
    ISBN9780857192783
    Professional Investor Rules: Top investors reveal the secrets of their success
    Author

    Jonathan Davis

    Jonathan Davis is one of the UK’s leading writers on investment. A professionally qualified investor, he is the author of three books about investment, has written regular columns for the Financial Times and The Spectator, podcasts for the Money Makers website (www.money-makers.co) and is an adviser to investment companies. His website is at: www.independent-investor.com.

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      Book preview

      Professional Investor Rules - Jonathan Davis

      Publishing details

      HARRIMAN HOUSE LTD

      3A Penns Road

      Petersfield

      Hampshire

      GU32 2EW

      GREAT BRITAIN

      Tel: +44 (0)1730 233870

      Fax: +44 (0)1730 233880

      Email: enquiries@harriman-house.com

      Website: www.harriman-house.com

      First published in Great Britain in 2013.

      Copyright © Harriman House Ltd.

      Original chapter text and photographs remain copyright © of individual authors or firms.

      The right of the authors to be identified as the Authors has been asserted in accordance with the Copyright, Designs and Patents Act 1988.

      ISBN: 9780857192783

      British Library Cataloguing in Publication Data

      A CIP catalogue record for this book can be obtained from the British Library.

      All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publisher. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior written consent of the Publisher.

      No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading material in this book can be accepted by the Publisher, by the Authors, or by the employers of the Authors..

      Preface

      The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do.

      – Warren Buffett

      THEY ARE THE world’s best – the professional investors at the head of global investment funds and the mavericks operating from behind nothing more than a laptop and a point of view; some with millions of pounds at their disposal and the fate of companies and customers’ savings hanging on their decisions, others with nothing more (or less) than their reputation and their own fortune on the line.

      What sets them apart from the thousands of investors out there is their track record. The professional investors who have contributed to this book include multiple award winners, fund managers who have managed to double or triple investment returns every two years, as well as the heads and founders of firms with billions – occasionally trillions – under management and half a century of profits to which they can point.

      We believe there are no better investors to learn from when making your own way in the markets. Uniquely, this book gathers together the secrets of their success – straight from the investors themselves.

      Who this book is for

      This book is for any curious or keen private investor. It’s perfect for anyone looking for inspiration for their own investing, as well as for someone considering investing in funds and who wants to check out the insights of the people behind them first.

      What this book does

      This book doesn’t claim to be a definitive guide to investing, nor a definitive compendium of professional investing rules. Instead, it sets out to be an eye-catching and moreish collection of maxims from a snapshot of the most impressive professional investors out there today (and with one entertaining look at perhaps the most successful investing dynasty of all time).

      A fascinating, indispensable guide for anyone investing on the stock market or looking at signing up to a fund, it lays bare all the creativity, grit and strategy needed to succeed.

      We hope investors find it as rewarding to read as it was for us to compile.

      Harriman House

      Introduction by Jonathan Davis

      Many years before he became chancellor of the exchequer under Mrs Thatcher, Nigel Lawson was the City editor of the Sunday Telegraph newspaper and in that capacity produced the first example I can remember of a published list of do’s and don’ts for investors. They weren’t perhaps as sophisticated or as profound as some you will find in this collection – this was a piece of journalism after all, probably dashed off in little more than an hour – but they had the merit of being both readable and a pointer to certain fundamental truths about investment which have subsequently stood the test of time and experience.

      These, to my mind, are the most important characteristics you hope to find in a good investment rule, and the reason why you should be looking to buy (and I trust profit from) this book. As in almost every walk of life, investors cannot fail to learn from picking the brains of those who have been there, done that, and lived to pass on what they have learnt to others. In this collection you have a chance to read the axioms of a score or so of professional investors who collectively have forgotten more than most of us have ever known about investment. (In later editions we hope to incorporate still more professional investor rules: if you come across any suitable examples, or have any of your own, please feel free to send the suggestions to rules@harriman-house.com.)

      The original article by Lawson appeared in 1963, the year in which, according to the poet Philip Larkin, the world discovered sex. I know the date for certain because I recently came across the full text of the article in The Investor’s Anthology, a collection of pieces by the wise and well-read American investment consultant Charles D. Ellis, whose own classic book Winning The Loser’s Game contains the definitive rule on market timing (Don’t do it. It is a sin). Even half a century later, Lawson’s seven rules are still an entertaining and instructive read. (See the appendices for the article in full.)

      All rules are of course conditioned by their time and context. The City of London then was a very different place to the one we know today. The financial markets were still a closed club for a privileged few practitioners, and access to information rather than brilliant analysis was the key to success. There was little in the way of detailed financial analysis and company accounts were rarely scrutinised with a critical eye, as standards of disclosure were rudimentary and haphazard at best.

      Most of Lawson’s rules were therefore confined to some important warning signs of a non-financial nature that investors, in his view, should keep an eye out for. His first, avoid companies whose chairman’s photograph is published more than four times a year, sounds quaint today, but in a period when financial PR was still unknown a company chairman whose picture appeared too often was obviously more interested in self-aggrandisement than in making the best of his business – a point that is still worth bearing in mind today, when the risk of boardroom egomania remains one of the biggest threats to corporate success.

      His third rule, Invest in companies whose chairman is less than 5’8 tall", was a tongue-in-cheek reference to the importance of taking into account the personal characteristics of those running a company when appraising the value of a potential investment. Small men – think Napoleon, think Julius Caesar – tend to be more highly motivated to succeed, or so it is widely believed. (I am not sure there is any definitive evidence on this point, and I suspect this might in fact be a good example of the kind of cognitive bias that behavioural finance experts have done so much to highlight in recent years.) Nevertheless the height – and perhaps also the weight – of board members is a point that the International Accounting Standards Board might usefully consider adding to its list of reporting requirements. (There are plenty of others that are no less silly.)

      As well as berating the trend towards overly large corporate boards – one insurance company in the 1960s had more than 40 directors – Lawson also highlighted another couple of classic warning signs: avoid companies who hold their annual meetings at awkward times or in unlikely places and avoid companies who have moved into lush new offices. His best rule though, I have always thought, was the last one: Bad figures always take longer to add up than good ones. By this he meant beware of companies whose results come out later than you would except if they were following their normal schedule. It usually means there is something fishy or unpleasant they don’t want to tell you about.

      You can tell how much mileage there is in that simple rule by the fact that 50 years later it is still one of the favourite lines of another contributor to this collection of professional investor heuristics, Jim Slater of The Zulu Principle fame. (It was Lawson, incidentally, who helped give Mr Slater an early break as an investor by employing him in those far-off days as a columnist for the Sunday Telegraph.) You can find Jim’s own set of rules for picking growth shares later in this book.

      Another classic list of do’s and don’ts is that created by the Scottish investment trust manager Ian Rushbrook, which has been updated by his colleagues specifically for this book (page 7). Among the many other gems you will find here, I cannot recommend too highly the philosophical insights of Jack Bogle (page 21), the founder of Vanguard, a man who has done more than anyone to make index funds a legitimate and useful contribution to the armoury of the ordinary investor.

      My own investment rules can be summed up simply:

      Most investments are sold hard. Caveat emptor (buyer beware) applies however illustrious the name on the offering document.

      Cost matters. In a low-return environment like today’s, every 1% you pay in fees to a fund manager or advisor comes straight out of the investor’s pocket. Make sure you are getting good return for your money.

      Do your homework. A few good decisions will always trump a lot of indifferent ones.

      No doubt the finicky will always says that there are exceptions to every rule, as indeed there are. Warren

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