I am a fan of Terry Smith but I wonder how many others in the fund management business are, given his knack of puncturing some of the carefully-developed myths that help to keep the rest of the industry going. His latest offering. a “sustainable” global equity fund, is a clever and well-judged attempt to highlight the flaws in the way that many other funds in this fashionable sector are in practice put together.
The best investment decisions are almost always those that feel most uncomfortable at the time they are made. George Soros says he gets terrible backache when running his biggest positions. ‘If it ain’t hurting, it ain’t working’ is a good motto to put on your computer screen. Those who think Japan is an excellent home for their money at the moment (as I do) are very familiar with this phenomenon.
What do you want the stock market to do for you? Make short-term speculative gains, or grow your wealth over a period of years? My answer would be: ideally both — but the wealth part is by far the more important of the two. The-question is: what can a wealth-seeking investor do to minimise the risk of losses along the way? Here’s one technique that might help.
Aim — originally the Alternative Investment Market — is a curious entity that understandably excites conflicting responses. Since its launch in 1995, London’s ‘junior’ market has raised some £24 billion in new capital for smaller companies. But more than 70 per cent of companies listed on this relatively laissez-faire exchange have failed to make money for investors. A huge number have disappeared: the best taken over or promoted to the main market; many more simply insolvent; some spectacularly fraudulent. The official Aim index, which tracks the performance of its 1,100 constituent members, remains 27 per cent lower today than it was when Aim opened two decades ago — and it excludes companies that have gone south in the intervening years. Yet, paradoxically, Aim has also been a resounding success.
In a world where we’re heading for driverless cars, drones that deliver groceries to your back garden and smartphones that switch your lights and radiators on and off automatically while you are miles away from home, is it strange to think about handing over your money to a robot to look after? No, it’s not such a daft idea as it may first appear — and if the trend to robotise your finances gains traction, it will mean exciting opportunities for investors and potential trouble for the army of financial advisers and wealth managers who make a well-paid living looking after your money today.
When you put your money into an actively managed investment fund, it’s as well to remember that you are putting your faith in a human being you have probably never met. Have you ever stopped to think who you have chosen to be the steward of your savings? They come in all shapes and sizes, from brash and super-confident ‘masters of the universe’ (mostly in hedge-fund territory) to more diligent, understated portfolio technicians who probably drive Skodas and come blinking into the limelight only under duress. Few investment managers, it’s safe to say, are quite as backward in coming forward as Nick Train of Lindsell Train. His track record is exceptional, but largely under the radar. One of his UK funds has beaten the market 13 years out of 15; the other nine years out of ten. The investment trust he runs with Michael Lindsell has done so well that its shares trade at a huge premium to asset value.