The Lessons from Investing
Investment approaches and processes are often very simple, it is the execution and sticking to your plan that’s the hard bit. - Matthew Vaight
Matthew Vaight worked as a Fund Manager at M&G until he retired at 42. He kindly shares some of the multidisciplinary lessons that he learned during his career.
1. What 3 books would you recommend for a person, with no prior knowledge, wanting to understand the broad principles of investing?
Poor Charlie’s Almanack is a collection of speeches and articles but is still by far the best introduction to multidisciplinary thinking in investing, plus a biting criticism of many professional investors in terms of their capability and incentives.
The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks, a pretty short book but packed with wisdom about how to invest…and how to think about investing. His client memos are worth seeking out too.
Often my default recommendation to completely new investors is a bit of a cheat but it is to read a handful of the Little Books that deal with investing:
The authors are all seasoned investors and their short books show that investment approaches and processes are often very simple, it is the execution and sticking to your plan that’s the hard bit.
2. What principles from Investing can be applied to other areas?
Being a professional investor is essentially being a professional decision-maker with a very measurable outcome (as long as you give a margin for luck!), so I think there are huge learnings on how to make good decisions. Some examples that spring to mind are :
- A clear and repeatable process for decision-making.
- A robust screening process so that you’re focusing on the handful of opportunities that really matter.
- Documenting your decision process and how you think the decision will pan out.
- Being clear on the key risks to the decision.
- Being clear on time horizons (this is one of the toughest challenges of investing as your clients (and your emotions!) often have a far shorter time horizon).
- Having adequate challenge in the decision-making process, your natural biases should become clear over time (loss aversion, anchoring, the endowment effect, etc.), sadly knowing them won’t change them so you have to be honest about their existence and try to put in place elements in the process to challenge them or offset them.
3. What small things make a big difference in investing?
- Having clarity on your investment process and investment edge, sticking to that process even when markets are against you.
- Documenting your decisions so that you can have an honest appraisal of why you made an investment, not why you think you made that investment six months down the line.
- Keeping things simple, if you don’t understand what you’re potentially going to do then don’t do it.
- Having a clear investment horizon to shut out the short-term noise.
4. What is the biggest misconception or the biggest mistake that people make in investing?
Completely ignoring the above answer…not having a clue what you are doing, shifting about depending on noise and the markets, buying things you don’t understand.
For instance, when buying a share you really are buying a tiny percentage of a company, you are a part-owner in that business and so you need to think like that…focus five years out, look at the fundamentals and competitive advantages of that business, see what cash flows that company can produce and so what it might be worth in a decade’s time, buy more if the market is giving you opportunity to buy at a significant discount to that value.
Don’t buy things just because you think they are going up! Or because a mate/cab driver gave you a tip!
5. What do the really successful fund managers do that others don’t?
They can simplify down to the things that really matter, have the clarity of thought to make the big decisions when required, see shifts in the big drivers of investment markets, and are emotionally retarded enough to stick with those decisions when times are tough.
6. Which gadget or tool had the biggest bang for the buck in your job?
I used a software program called HOLT that helped me screen the market, make comparisons easily across geographies and sectors, and identify mis-valuation opportunities. However I did probably become overly reliant on it, plus it had flaws that made me miss opportunities or sell too early.
So instead I’d say a local coffee shop with a friend/colleague…and before each decision, you have to go have a coffee before you press the button (that break is invaluable), and justify your decision to the other person. It might just stop you making a stupid decision…or make you double up and go all in!