Notes from the Other Side II

A while ago, I wrote about some of the things I had learnt moving from an analyst role to being a fund manager of my Small Cap Fund.

Here is the original article: Notes from the Other Side. While I believe its lessons are still valid, I think it might be time to write down a couple more (I’m always learning!):


  1. Everyone is long-term when things are good: When an investment or your fund is ticking up slowly and steadily, it is easy for people who have committed as long-term investors to stay invested. They are making money. When Nene Gate, Brexit, Trump or Zupta’s happen and the market is crashing, the long-term investors start to shorten their investment horizons. Be vigilant of this and prevent yourself doing so while reminding other investors not to do so either.You cannot stop the market panicking, but you can stop yourself from doing so and help those around you to remain logical.
  2. Find people who (intelligently) disagree with you: The most valuable debates are with people who disagree with you. Their challenging of your view either reinforces your argument or proves you wrong. If it does the latter, then you should probably change your opinion. If it does the former, then your conviction is strengthened. Do not fall prey to research bias and finding opinions that back your own up, but rather seek those that challenge your own.
  3. It’s half about what you did not invest in: Performance in the stock market is about two things: (1) What you are invested into, which everyone knows, and (2) What you are not invested into, which everyone forgets. The latter is important because if an investment that you passed on generates an incredible return, you need to a justified reason as to why you did not invest in it. Analysts only ever talk about what they cover, not what they don’t cover. Fund managers and investors need to know both. It is fine missing a good investment if you missed it for the right reasons.
  4. There is massive power in admitting that you do not know: Brexit, Frexit, Trump, trade wars and real wars potentially popping everywhere… If you pretend you know how the macro is going to play out now, you will either be forced to or trick yourself into making binary bets. Not that you will be wrong, you might even be right, but it is binary and if you are wrong, you lose it all. Investing should never be binary, that’s what gambling is all about. Investing is risk-adjusting odds to be in your own favour all the time. Admit when you do not know for certain, and hedge against it then. That is investing.
  5. Manage what you can control: As a fund manager, there are a couple things I can control: (1) Which shares we are invested into, (2) What proportion into each of these shares, and (3) How much cash we are sitting on in the portfolio. Despite common misconceptions, even fund managers cannot control what share prices do. Hence, I spend almost all my time working through fundamentals of businesses, companies and group. I analyse any news flow from or around our investments in detail to ensure that they are still good businesses. And, finally, I manage risk, reward, liquidity and opportunity by the proportions that we hold of each stock and the reserve of cash that we sit on. In the short-term, share prices will do whatever they do, but in the long-term I believe that if I manage these elements well, then our portfolio will do well. Do not waste your time trying to control things that you cannot control, but focus your time and effort on those variables that you can control.


Hope the thoughts have some value for you.

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