The One Rule To Follow If You Want To Become A ‘Star’ Stock Picker
There is often an air of mystery and magic around the ‘secret sauce’ of master stock pickers. However, The Times columnist James Coney believes that the reality is far simpler. In a recent article for the newspaper, Coney explains his opinion that the ‘cult of the star fund manager’ is responsible for what he considers the ‘unhelpful’ belief held by many of those investing online in stocks and shares ISA and SIPPs.
Coney believes the secret to achieving consistent success when picking stocks for an investment portfolio comes down to little more than consistently sticking to the principles of a tried and tested formula. Many of those investing online theoretically have a stock or investment picking strategy they follow, be it Buffet’s value hunting or Vanguard boss Jack Bogle’s ‘simplicity and low cost’ passive index investing approach. However, on closer examination, how many can say they rigidly stick to these principles and are not enticed by ‘shiny new toys’ that capture their imagination but compromise their portfolio’s principles?
Coney points to the ‘star’ investment managers such as Warren Buffet and the UK’s Neil Woodford, Nick Train and Terry Smith. All are dogmatic in their refusal to budge from the approach that has delivered for them even if this means all have suffered bad runs when their funds have underperformed. During these moments investors have lost faith in them all.
Woodford’s fund ‘Woodford Investment Management’ has recently suffered a run on its capital under management with holdings having to be sold off to meet redemption requests. This, Coney argues, is symptomatic of the cult of the star fund manager leading investors to believe certain fund managers have somehow stumbled across some magic beans that means everything they touch turns to gold. While that illusion lasts, they follow their pick unquestioningly. However, during inevitable periods of underperformance these same investors quickly jump ship to the latest ‘in vogue’ stock picking rock star.
Unfortunately, the success of these newcomers is often as short lived as the investment horizons of investors intent on fast, impressive and continuous profits – something the history of the stock market has demonstrated is unrealistic. But the dogmatic pragmatists inevitably bounce back and demonstrate consistent long term outperformance when judged over 5,10 or 15 years.
The overriding message, one that is perhaps particularly apt in the current context of a market correction that many believe might well lengthen and deepen over next year, is that successful investment decision makers stick to one rule – sticking to their principles. They don’t react to periods of poor performance and focus on the long term.
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