Warning: For serious investors only! PART 1

Oops, did you click this post by accident?  Or did you conscientiously click it because you do consider yourself a “serious investor” – I mean – serious investor (no irony intended)?

I do apologize if my header created any sense of overconfidence in you.  I certainly would not want you to engage in even more risky behaviour.

On the contrary. With this post I want to share with you what I have learned from reading the book “The Art of Execution” by Lee Freeman-Sohr.

A book summary? Really?

Are you disappointed now?

Well, as you are already here you might as well read on.  I do promise you will get something out of this post (whether you like it or not that’s totally up to your disposition and mindset).

Execution, execution, execution

Back to that intriguing book.  It does not hum about theoretical approaches and systems derived from humongous amounts of back-testing.  No, the author summarizes his findings from what actual leading investors did with his money.  Real money.  Big money.  Real trades.  He simply gave 45 of the world’s top investors between 20 and 150 million dollars each to invest  on his behalf.  Along with the money he gave them strict instructions that they could only invest in ten stocks that represented their very best ideas to make money.

Was he insane or very rich or both?

Neither, he simply had a job as a fund manager at Old Mutual Global Investors and the mandate to outsource the investing.  He followed the rational (?) belief that the greatest possible returns on capital could be achieved by hiring the best investors in the world and getting them to invest in their best ideas.  Ideas they had significant confidence in, and were often the the result of painstaking research by some of the presumably smartest people.

So it all began in June 2006 and ended in October 2013 when he took stock.  In total those 45 investors executed 1,866 investments via 30,874 trades during that period.

Most of those lost money.

Overall only 49% (920 investments) of the very best investment ideas made money.  Some even lead the pack with only 30% successful investments.

But – abba then – almost all of them did not lose money.  In fact, they still made a lot of it.

How were most of these investment legends able to be wrong more often than they were right and still make incredible profits?

 

Interlude: Some of my readers commented that my posts are way too long for comfort. As such I do end here with part 1. Stay tuned for part 2.  Eh, don’t complain to me that this is unfair. I am merely trying to please my two regular readers (I really could not afford to lose 50% of my readership just like that by not listening to their feedback).

 

In the mean time you might want to check out some of my previous closely related posts:

 

Illusory superiority effect

Self-serving Bias

Optimism

Illusion of Control

8 Comments

  1. Hey Andy…

    Hahhaa… indeed this is the reason why I also split my post into 2 parts to reduce yawnings from readers!

    Singapore leh, evryone want short n sweet Lar Lar lar !!!

    • Hi Rolf,

      I am afraid that it is not only Singapore that wants short n sweet. The rest of world show similar trends. Our attention spans drop continuously.
      What did I want to say …?
      Ah yes, some things in life however do deserve some focused attention over longer periods of time to be fully enjoyed 😉

  2. Hi Andy,

    Just received the book from NLB, glad it’s nut those thick thick book like intelligent investor. Think I can finish this before holiday

    • My take is that you will be able to finish it in three sessions of 2 hours each easily. But don’t read it too fast as it contains many nuggets of wisdom (= lessons from other people’s mistakes).

  3. Abba then??? (Was thinking what has Abba the pop group got to do with anything… Typo?)

    ABBA THEN!!!

    You speaking Singlish!

    Good one!

    German speaking our Singlish 🙂

    I so very de proud.

    • Congrats Jared, you are the only reader who spotted it. I have to disappoint you a bit. It may sound like Singlish but in fact it is Franconian English 😉

  4. Hi Tacomob, I’m waiting for part 2

    • Hi Yaruzi,
      Part 2 might take a while though. My computer (new, grrr) crashed again yesterday and is with the IT doctor now (indicative down time 5 working days).

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