Markets may change, principles not
People are not that different when you look at the mistakes they typically make as investors. Nedgroup Investments asked a number of the Best of Breed fund managers with whom it partners what they think the common pitfalls are, as well as what advice they have for investors.
Eldria Wagenaar, CIO of Prescient Investment Management, the house that manages the Nedbank Bond, Flexible Income and Positive Return Funds, names a 'get rich quick' approach as the most common investment mistake. It is this lack of patience that Walter Aylett of Aylett & Co. and manager of the Nedbank Bravata Worldwide Flexible Fund, identifies as investors greatest downfall. Investors need to realise that 'a person stands under the shade of a tree that was planted 20 years ago,' Aylett says. Trying to time the market, is also a common investment mistake. Rob Nagel of Cadiz African Harvest Fund Management and manager of the Nedbank Equity Fund, advises it is not timing the market - it's time in the market' that counts.
Graham Mason, CE of Prudential Portfolio Managers and co-manager of the Nedbank Mining & Resources Fund, comments that 'buying for short-term gain is very much wrapped-up in a mistaken belief that the investor knows something that the market doesn't yet know. Often these stocks are already expensive. Quite why investors believe that the information that they've heard, often in the form of a stock tip, is not yet fully priced into the price of the stock that they are buying is never articulated.' Richard Gosnell of Taquanta Asset Managers and manager of the Nedbank Inflation Beater Fund, also refers to 'being swayed by current news and losing perspective of long term principles' as the most common mistake investors make.
But what are the long term principles, according to these fund managers?
Aylett believes the best advice he ever received was 'your return on an investment is determined by the price you pay and not the exit price' - a typical value principle. Masons best advice ever received runs along a similar vein; 'buy assets when they are below their long term fair valuation (cheap) - not assets with great prospects, not assets that are loved by other investors, not assets that have great stories surrounding them.' 'Feed the ducks when they quack,' is the phrase Piet Viljoen of RE: CM and manager of the Nedbank Managed Fund, uses to capture this principle.
Wagenaar appreciates the advice she once received, which was to read Value Investing by Graham and Dodd, as well as the reminder to keep it simple and to make sure you understand what you are buying. Nagel emphasises that investors should analyse the fundamentals of a company dispassionately, rather than find false comfort in the fact that they can relate to a particular company. Viljoen also warns against confusing the share price with the value of the company - the latter is what the investor needs to determine.
Wagenaar stresses that investing according to the age old value principles of Benjamin Graham is hard work. 'If you do not have the time and patience required, rather give your money to an experienced money manager. Make sure they follow these principles and have their own money in the fund you are investing in.'
The only times the value or price of an investment should matter, is on the days of purchase and sale of the investment. A focus on short-term performance often leads to emotional investing and the potential sale of an investment at the worst possible time. Neil Brown of Old Mutual Asset Managers and manager of the Nedbank Growth Fund quotes Warren Buffet to illustrate this point. 'In investing, just as in baseball (or cricket to South Africans), to put runs on the scoreboard one must watch the playing field, not the scoreboard (or Micropal).'
'Long-term value investing is the key to protecting your capital, while participating in some of the potential upside of the market,' is how Nic Andrew, Head of Nedgroup Investments, summarises the sound investment principles to which the majority of the managers of the Nedgroup Investments Best of Breed range subscribe.
