FANews
FANews
RELATED CATEGORIES
Category Investments

Lessons learnt from nearly 30 years of investing

11 June 2024 Ninety One

Ninety One’s Head of Quality, Clyde Rossouw, has been managing money for nearly 30 years and has had a fascinating career in investments, having managed portfolios through numerous market crises and periods of rampant buoyancy. Earlier this year, he celebrated 21 years as Portfolio Manager of the Ninety One Opportunity Fund, and it was fitting that the fund also won the award for best moderate allocation fund at the Morningstar Awards for Investing Excellence in the same week. He shares some of the key investment lessons he has learnt.

1. Have a clear investment philosophy and process
Investing successfully over meaningful periods demands you have a well-defined philosophy and process. The key is finding a process that works and sticking to it. Chasing your tail will only result in disaster. Being disciplined is crucial, particularly through periods of performance pressure.

2. Investments do not simply live on spreadsheets
While you need a solid knowledge of statistics and financial accounts to value assets, understanding the psychology of markets and investor behaviour is also key to maximising investment success. Spend equal
time studying history, economics, psychology and accountancy.

History helps us make sense of countries’ policy regimes over time and the factors that shape the global macroeconomic environment. The monetary and fiscal policies of the major economies have a material impact on global financial markets. If you don’t understand the history behind certain markets, you won’t appreciate why asset prices don’t always revert to their long-term mean or average level. It also helps provide a guide on the patterns markets display.

3. Align temperament, intellect and experience
Temperament is incredibly important in fund management because, ultimately, it determines how you behave in difficult circumstances. Maintaining an even temperament is particularly important when you face a situation with a highly uncertain outcome. Forecasting doesn’t work, and the reality is we invest in a highly unpredictable and fluid world.

When you think about any investment decision, the first question you must ask yourself is, what edge do I have? Secondly, you need to consider whether you have superior insight based on the work you have done. And lastly, have I seen this before?

4. Things go wrong – learn from your mistakes
I wish I could say that every single investment our team has made in the last 21 years of the Ninety One Opportunity Fund has been a success, but that isn’t the case. You need to accept when you are wrong, know how much money you have lost, and importantly, learn from your investment mistakes.

Avoid falling in love with a stock, sticking to losers for too long or investing before doing a proper assessment of the investment case. Limit losses, take justified position sizes and don’t take inappropriate risk – leaving room for error allows you to stay in the game after shocks.

5. Have a differentiated position
How do you deliver results and generate outperformance? You need to be an early holder of a different investment idea that, ultimately, contributes to the portfolio. It’s one of the key tenets that drives an active manager’s ability to outperform. Being different just for the sake of it doesn’t generally lead to desirable outcomes for investors.

6. Be curious, even sceptical, but not cynical
You have to be curious to find different ideas, but this can lead you down many a dark path, so it’s important you maintain a healthy dose of scepticism. It’s also important to differentiate between scepticism and cynicism. If you are cynical about an idea, you will make mistakes because your view will remain fixed – no matter what evidence is produced. On the other hand, if you blindly believe every great ‘investment story’, you will also make mistakes because you need to assess whether those stories are based on facts. Healthy scepticism means you keep an open mind on potential investments.

7. The best ‘investment stories’ carry the highest potential to lose money
There is no shortage of good ‘storytellers’ in the investment industry. Unfortunately, many of these investment stories could see an investor lose a lot of money. These stories are often used to support a particular agenda. Don’t chase the popular narrative. You may find yourself backpedalling when the story unwinds.

8. If you can’t value an asset, you can’t quantify risk
Markets move through different stages – at times, valuations don’t seem to matter, and undue exuberance sets in. Eventually though, fundamentals will start driving the broader market again. This leaves investors who own assets that they can’t value exposed to sharp market corrections. If you own something that you can’t value, you have no idea what the risk of losing money is. There are countless examples of this in the world of cryptocurrencies.

Stocks, bonds and property all deliver cash flows, which make them easier to value, so we include them in our portfolios when there is a good investment case to be made. Currencies are equally important to understand if you want to be successful in managing multi-asset portfolios for South African clients. You can value currencies using models applying purchasing power parity and capital flows.

9. Don’t confuse luck with skill
When things go well, many investors attribute it to their skill and when that same share goes down, they feel they were unlucky. Sometimes, luck, not skill can result in a payout. Luck isn’t usually repeatable. So, from an investment perspective, focus on what you can repeat and don’t place too much emphasis on outliers – there’s likely to be an element of luck you can’t duplicate.

10. Take risk. Manage risk
With so much focus on negative headlines, it often feels like it’s prudent to be negative. When it comes to investing, however, negativity rarely proves to be a sound decision. Over time, you can’t avoid investment risk because you simply won’t create real wealth. Hiding in a perceived ‘safe harbour’ will lose value over time as inflation erodes the purchasing power of your hard-earned savings.

Conclusion
Over the long term, markets go up but not in a straight line. Balancing risk and return remain the cornerstone of successful investing. We continue to seek differentiated investment ideas to generate long-term wealth for our clients. There are no shortcuts when you want to achieve sustainable returns over time. We uncover good investment ideas by doing our homework and remaining disciplined investors. A few areas of the market that receive most of today’s attention look extended, but we continue to find compelling investment ideas for our portfolios.

Quick Polls

QUESTION

Which aspect do you think is most critical for the future success of financial advisory firms?

ANSWER

Embracing technological advancements
Rethinking fee structures
Focusing on inter-generational wealth transfer
fanews magazine
FAnews June 2024 Get the latest issue of FAnews

This month's headlines

Understanding prescription in claims for professional negligence
Climate change… the single biggest risk facing insurers
Insuring the unpredictable: 2024 global election risks
Financial advice crucial as clients’ Life policy premiums rise sharply
Guiding clients through the Two-Pot Retirement System
There is diversification, and true diversification – choose wisely
Decoding the shift in investment patterns
Subscribe now