Over the decade or so that I have been at the Motley Fool, I have had the good fortune to meet and chat with many professional money managers. Some are ordinary. Some are quite special. Just a handful is truly outstanding. Outstanding money managers deserve our attention because they have dared to put their reputations on the line by thinking differently. All too often, professionals like to play safe and ultimately end up as closet-trackers. This is one of the main reasons why so many fund managers underperform the market – they charge above-average fees for average performances, which…
Over the decade or so that I have been at the Motley Fool, I have had the good fortune to meet and chat with many professional money managers. Some are ordinary. Some are quite special. Just a handful is truly outstanding.
Outstanding money managers deserve our attention because they have dared to put their reputations on the line by thinking differently.
All too often, professionals like to play safe and ultimately end up as closet-trackers. This is one of the main reasons why so many fund managers underperform the market – they charge above-average fees for average performances, which leaves you with below-average returns.
However, the same cannot be said of those who think outside the box. By daring to think differently, they are also able to deliver outstanding returns that in some cases could be as much as 290% over a decade.
But what does a return of 290%, which equates to an average annual return of almost 15% over the last ten years, actually mean?
It means that a regular investment of $200 a month for the last 10 years would have turned into a pot of money worth over $54,000 today. By comparison, the Straits Times Index (SGX: ^STI) has returned around 10% a year over the last ten years. So a similar monthly investment in a Singapore stock market index tracker would have turned into about $41,000.
So, what can we, as private investors, do to improve our investing returns?
Here are four things that I have gleaned from talking with outstanding money managers that could, in turn, help supersize our returns.
Focus on finding good companies
Outstanding investors have a clear understanding of where everything is going. They then fit their investing decisions into their view of the world. This helps them remain focussed rather than reacting to what is happening on a day-by-day basis.
Remaining focussed when investing is vital at any time but especially relevant when there are conflicting views about the global economy. One day it can look as though the world is falling off a cliff, while the very next day everything in the garden is coming up roses.
But if you try to make investment decisions on the basis of what you hear, see and read every minute of the day, then you are almost guaranteed to get it wrong. That is because it is highly unlikely that the global economy is either falling off a cliff or is it ever a bed of roses.
Be arrogant and humble
Good investors need to have the right balance of humility and arrogance to succeed in the market. You have to be arrogant enough to keep in mind a central understanding or thesis about why you bought a particular stock.
Consequently, unless the story has somehow changed appreciably you should be confident and, dare I say, arrogant enough to stick to your guns and not let unrelated events distract you.
At the same time you need to be humble enough to admit when you have got things badly wrong. Perhaps your investing thesis was incorrect in the first place or maybe things at the company have changed for the worse.
Forget the price you pay for a share
One problem that many investors have is a belief that they must always sell a share for more than they paid for it. So, what you must always try to do when you invest is forget about what you paid for a share.
If you can do this successfully, then you are going to look at outcomes rather than trying to prove that you were right all along. Remember investing is about finding a good home for your money over the long term. You cannot easily do that if your money is tied up in bad investments.
Do not try to look for the next Microsoft
There are some investors who are just very good at looking at a business and somehow know what that company will do in the future. Unfortunately, most of us cannot, which is why it might be better to buy something cheap instead.
Truth is, many of us will probably never spot the next Microsoft in a month of Sundays. But that should not stop you from being super-investors. So, unless you have a special talent for picking a company that is massively expensive today but is going to dominate the world in the future, then just focus your attention on buying the cheap stuff.
Warren Buffett once said that he doesn’t look for seven-foot bars to jump over. Instead he looks for one-foot bars that he can step over. It hasn’t stopped him from delivering super-sized returns and nor should it stop you.
This article first appeared in Take Stock Singapore.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.