Six Key Investing Lessons – From the Financial Leaders Who Really Know!

As children across Britain sharpen their pencils and head back to school, there are some financial lessons their parents can learn too.

We asked Britain’s top investment managers to share the key things they learned – and how they put them into practice.

Lesson one: Too much debt only makes companies vulnerable

Early mistakes have led to caution from Richard de Lisle, who manages the VT De Lisle America Fund. He started his investing journey at the age of 16, but lost his hard-earned pocket money on a risky bet.

“In the spring of 1974 I had saved £80 from my newspaper rounds,” he recalls. ‘My interest in the stock market came from watching my father’s anguish when he lost money in his shares, while my aunt did very well by following up on tips in her newspaper The Telegraph with an inheritance from her father from the the fifties. I thought the newspapers could make a difference. They did.

‘I read everything on my newspaper rounds and did well from Patrick Sergeant in the Daily Mail and Jim Slater in The Telegraph. Those were my favorites. Yes, the postal service has played a role in my career.

‘The FT 30 had fallen by more than half in two years. The share prices were so low that I was tempted by the glamorous Court Line (a former shipping company turned holiday provider). It led the new package holiday boom, opening up Spain’s Costas to people who had never been abroad before.”

Despite his tender years, De Lisle even looked at the valuation, including the price-earnings ratio, which shows how much profit a company makes per share. As a rule of thumb, the lower the ratio, the cheaper the company.

‘The price/earnings ratio was less than four; the return was 17 percent. What could go wrong?’ De Lisle asks.

A lot, as it turns out.

‘Five months later, Court Line went bankrupt due to too much debt and I lost all my hard-earned money. My friend’s father, the fish and chip shop owner, did much better. He put all his assets into five top companies and more than doubled his money in six weeks.

“Warren Buffett says debt only speeds things up, and it does. Today we run a value-based fund. While we like cheap, we don’t like debt. Lesson learned.’

Lesson Two: You’re almost always wrong before you’re right

For Laurence Hulse, who runs UK smaller business specialist Onward Opportunities, an internship at Barclays Capital at the age of 18 brought with it a lesson he has lived by all his life.

‘You’re almost always wrong before you’re right. This was one of the first ‘lessons’ I ever learned,” says Hulse. During his time at Barclays under respected stock trader Howard Spooner, Hulse learned that because you typically don’t time the market perfectly, your investment is likely to fall initially. “Except in the unlikely event that you buy at the very lowest price or sell at the very highest price down to the penny, you have to be prepared to be wrong at first,” says Hulse.

He adds that if you buy a stock and it initially drops in value, or sell a stock just to see the price increase, you’ll “look wrong,” even though you may be right in the long run made.

As a result of this lesson he has learned not to make sudden deviations in his trading. “We rarely trade in or out of a company in one transaction because we would assume you have timed things perfectly.”

Lesson Three: Investigate whether you’re investing… or gambling

John Husselbee, head of multi-asset at LionTrust, learned many of his investing lessons from his family. “My father taught me that when you speculate at the racetrack or in a casino, you should calculate in advance how much money you are willing to lose by gambling, and then put that amount in a separate box to be treated as a sunk cost.” to deal with. What’s left in your pocket at the end of the day is your happiness. However, if you are unlucky and your wallet is empty, never add anything to it, just walk away,” he says.

From his grandfather, who bet on horses as well as invested in shares, he learned the difference between investing and gambling.

‘When we went to visit my grandad on Saturday mornings we would walk to the newsagent to buy a copy of the FT and the Racing Post. At home, I would update the prices of Grandpa’s stock in his ledger and calculate the gain/loss since the purchase.

‘Meanwhile, Grandpa was studying the form to select his bets for the afternoon races live on television. We walked back to the newsagent’s; Grandpa gave me pocket money for sweets and I waited outside the bookmakers while he placed his bets.

‘The lesson we learned was the difference between investing and speculating. With the latter you have to be prepared to lose all your money!’

Lesson Four: It is always darkest just before sunrise

For a lesson he has never forgotten, Ian Lance, fund manager of Redwheel’s UK Value & Income team, recalls a despondent lunch at the Sweetings oyster bar in the City of London, just as Britain was on the verge of was about to disappear from the European Union. Exchange Rate Mechanism (ERM) in September 1992.

‘I calculated the payments on the mortgage my wife and I had taken out a few months earlier to buy our first home at the new 12 percent interest rate the government had just announced.

‘When I discovered that our payments were more than our combined salaries and that the UK stock market was collapsing, I went to Sweetings to drown my sorrows.

‘About an hour later a colleague came and announced that the stock market was soaring. The rest is history when Britain crashed out of the ERM, interest rates plummeted and a new stock market began.”

What did he learn from this – other than taking a long lunch every now and then? “Markets look ahead and peer through the darkness to the sunlit highlands,” he says. If you’re all despondent, maybe it’s time for things to turn around.

Lesson Five: You don’t know as much as you think you know

Jamie Ross, portfolio manager at Henderson Eurotrust, says the facts at our fingertips make us more vulnerable than we know. He says the biggest lesson from his career is to always focus on one key question when deciding whether or not to invest.

That question is: ‘What makes this a good company?’

“It leads to all kinds of analysis, from understanding the competitive environment to assessing pricing power and trying to determine the sustainability of a company’s margins.”

Without this simple question, he says, it’s easy to drown in information about a potential investment and think you know everything about it.

‘Knowledge is not the same as understanding. Even experienced investors can sometimes lose sight of the forest for the trees and suffer from familiarity bias; they feel more comfortable investing in something they ‘know’ a lot about.

“Every time I start a potential new investment, I think about this.”

Lesson Six: Take an expert’s advice with a grain of salt…

Edward Allen, investment director at Tyndall Private Clients, says that despite their wisdom, all investment experts are ‘rarely cynical enough’. So you should never believe what you read from those who have nothing to lose by their predictions.

‘Economists and market forecasters have the luxury of being wrong. Investors are not,” he emphasizes.

‘Understand an author’s biases as you follow their advice and remember that for every balanced, well-reasoned argument for doing something, there will be many others doing the opposite.

‘The investment world is perverse and often apparently irrational.’