My biggest investing mistake: fund managers tell all

Fund managers reveal their biggest regrets. Photo / AP

All investors, no matter how good, make mistakes. They can range from buying a stock for the wrong reasons, to reacting to short-term news and selling a company too soon.

Learning from an error and not repeating it is a key part of successful investing.

Telegraph Money spoke to a number of top professional fund managers about errors they had made that stick in their mind, and the lessons that can be learnt from them.

David Coombs, head of multi-asset at Rathbones

Coombs' worst error came during the tech bubble. "I've always been reluctant to pay up for 'growth' companies. In 1999, valuations and hype were shocking, but eventually you think you must be wrong and everyone else is right," he said.

He bought WorldCom, a telecoms firm that went bust following major accounting scandals.

"It was a massive company - too big to fail. But of course it wasn't, because it went bust. There was fraud involving the firm's management," he said.

He said that at that stage in his career, two decades ago, he didn't have the confidence to go against the herd.

"That was my mistake - I didn't have the courage of my convictions, and assumed that the rest of the world was right. You need to ignore the noise and have courage, without becoming too arrogant."

He added that over-analysing a mistake and doing the exact opposite next time is another resulting trap that investors can fall into.

"Companies are run by people, who you are entrusting your cash to. WorldCom reminds you that it's about people doing the right things," he said.

James Anderson, manager of the Scottish Mortgage Investment Trust

Anderson said his worst mistake was not a stock he bought in error, but one he missed out on.

He was an early backer of firms such as Facebook and Google, but didn't buy shares in Apple until 2009, during the global financial crisis. He believes he should have bought them a lot sooner.

"Fund managers don't like being wrong. I have had stocks go to zero, but I think more about the missed opportunities," he said.

"We were lucky to buy Apple in 2009, but how we didn't buy it before that was extraordinarily crass and feeble on our part."

For an individual investor, such an omission could take the form of ignoring a particular sector, or waiting for a fall in the share price that never comes.

Anderson's global trust is a top performer, having returned 227 per cent in the past five years. It is on our Telegraph 25 list of favourite funds.

Trevor Green did not buy into Apple until 2009. Photo / AP

Trevor Green, head of UK equities at Aviva Investors

Green said his worst error was selling a stock he had held for 10 years, just before a bid was made for the company - an event that can trigger a significant share price rise.

He had owned shares in healthcare firm Amersham since 1993, but sold the stock a week before General Electric made a bid for it in October 2003.

"The business had a lot of the characteristics I look for in an investment - growing markets, pricing power and world-leading technology. I sold due to concerns about short term currency movements that had hurt earnings," he said.

General Electric's offer of 800p per share represented a 45pc premium, meaning Green missed out on a huge instantaneous boost to his returns.

"The lesson I learnt was that as the fundamental reasons for why I bought the stock hadn't changed, it was wrong to sell on minor short-term issues. If you are a long-term investor, you should follow that rule and ignore the noise," said Green.

John Husselbee, head of multi-asset at Liontrust

Husselbee said that investors should be particularly wary of short-term "fads and fixations".

"I am wary of fads in fund launches offering alternative sources of capital growth and income. There have been many over the years, including life settlements, 'catastrophe' bonds and an unlimited range of private equity offerings," he said.

The mistake that sticks in his mind is putting money at launch in an investment company investing in "new and alternative methods of discovering oil".

"It seemed a great opportunity, until the oil price crashed from its $120 peak. The lesson for me was to stick to our preference for investing in established funds where track records can be thoroughly examined," he said.

Sue Noffke, manager of the Schroder Income Growth investment trust

One investment that sticks in Ms Noffke's mind is Carillion, the struggling construction and services firm.

She bought shares in 2012, at a time when the firm had a cheap valuation and a high yield.

"There are always risks with such stocks, but we could see the attraction of its support services and construction business," she said.

The investment did not prove successful, with the shares making little progress in the three years she owned them.

In 2014, she was suspicious of the firm's rationale behind attempting - unsuccessfully - to buy rival Balfour Beattie.

She sold the stock in 2015, as the firm's debt levels and accounts looked suspect. In July this year, the firm had a major profit warning and the shares fell by 70 per cent, having already fallen by around 50 per cent between the beginning of 2014 and the profit warning.

She said that investors should not be afraid to admit a mistake and sell an investment at a loss if its fundamentals - such as valuation, debt levels - indicate the situation is likely to get worse.

Never invest into something you don't understand, one says. Photo / File

Richard Buxton, head of UK equities, at Old Mutual Global Investors

Buxton's biggest error was not something that many individual investors are likely to encounter, but there are broad lessons to be learnt.

He warned that investors should "never, ever" invest in "Special Purpose Acquisition" companies, otherwise known as "shell" companies.

These are publicly listed investment companies that raise cash for the purpose of buying out an existing private firm, to take it public. In effect, investors write a blank cheque to the managers of the company to go out and make an acquisition.

Buxton said that regardless of the management team's experience and track record, investors should avoid them.

He said: "A pile of cash and a need to spend it will result in overpaying. Due diligence will be rushed. Blind alleys will be rushed down since there is the money there to fund them."

He suggested that investors should stick to existing, established businesses instead.

"You should never let an ambitious management team loose with your cash. You will regret it," he said.

The broader lesson is to never invest in a company or fund that you don't fully understand, where blind faith is involved, or where there is ambiguity about what your money is being used for.