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11 attributes of successful investment managers [From Magellan - Hamish Douglass]

It can be difficult being an investor.

 

The markets take off in an upward burst and it is exciting and you think it is a good idea to add money to your investment portfolio.  Then all of a sudden there is bad news and markets go backwards for a period of time and you start thinking that you should stop investing money, or start pulling your money out.

Even if you know that the best way forward is to ride out the ups and downs and turmoil - your heart and emotions and reactions to the blasting 'breaking news' stories in the media can be difficult to manage.  However, successful investors are those that can tame the emotions and stick with the investments, understanding that it all works out in the long term (as long as you are invested for the long term, and if you have a short term horizon, you probably shouldn't have equities/shares/property in your investment portfolio.)

At Moneyworks, we know how difficult it can be to manage different investments, that it takes skill, research, patience.  We recommend that our clients use expert investment managers, rather than invest directly into shares and bonds. We spend our time researching the fund managers, monitoring them and making sure that they are doing the best job for you, their clients.

Magellan and the 11 attributes that make them successful when they are making investments in their funds

Hamish Douglass, the Lead Portfolio Manager, CEO and CIO of the successful Magellan Asset Management Limited published his thoughts on the 11 attributes of a successful investor.  I have summarised these below, and you can read the full paper here: Being an Investor (July 2015)

Magellan manage two of the core investments in our clients portfolios. the Magellan Global Fund and the Magellan Infrastructure Fund.  As Hamish says 'we are in the business of investment and not speculation'.

These are attributes and principles that Magellan apply to their successful investment strategies.

1. Incorporate a margin of safety: "The margin of safety is the difference between a stock's price and its intrinsic value" (Benjamin Graham)

2. Invest within your circle of competence: "One of the greatest pieces of economic wisdom is to know what you do not know" (John Kenneth Galbraith) and "Real knowledge is to know the extent of ones ignorance" (Confucius).

3. Be prepared to walk away: Our inbuilt biases make it difficult for investors to walk away from investment opportunities or sell investments when something has gone wrong.

4. Do not overly diversify: "Diversification is a protection against ignorance." (Warren Buffett)

5. Focus on the batting average: as compared to 'out of the ball park' decisions. Minimise the inevitable investment mistakes rather than  find the 10x investment winners.

6. Have a medium (to long term) investment horizon: This compares to the 'institutional imperative' of continually having short periods (quarterly or annually) of outperformance.

7. Think in terms of probabilities and not in single point estimates: It is very difficult to work something out exactly, the probability of outcomes provides a more sensible approach.

8. Challenge your own ideas (invert the problem): Confirmation bias is one of the primary causes of investment mistakes.  Investors often seek or rely on information which confirms the decisions they have made and they become overconfident.

9. Do the analysis and think independently: "A public opinion poll is no substitute for thought." (Warren Buffett)

10. Investment temperament (controlling the biases): Training investors to remain unemotional in their decision-making is almost impossible.  "I will tell you the secret to being rich on Wall Street.  You try to be greedy when others are fearful and try to be fearful when others are greedy." (Warren Buffett).

11. Understand opportunity cost: Opportunity Cost is the cost of an alternative foregone to pursue a course of action.

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