Bill Gross, co-founder of Pacific Investment Management.Photo: Getty Images
If you get astute investors talking long enough, their stories are often revealing. You'll hear not only about their triumphs, but also about their most painful failures. We asked financial experts to tell us about their experiences that left their mark and, more importantly, what they learned from them. Their answers have been edited for clarity and length.
What was the most difficult lesson?
Bill Gross, philanthropist and investor. He was a co-founder of Pacific Investment Management, which ran the world's largest bond fund.
I learned a costly lesson about the dangers of leverage early on. In fact, a few months before I started my career at Pimco, I bought US Treasuries with 10:1 leverage. From my previous experience playing blackjack, I was able to save him $10,000 in stock. From there, he learned that bets should be limited to no more than 3% of his liquid net worth. I completely ignored it and bought $100,000 in 30-year Treasuries, but within a few weeks the price dropped and half of my savings were gone. I would make a lot of mistakes in the bond market over the next 40 years, but never this much in terms of percentages. lesson? Gambling belongs to casinos. Investing requires careful use of capital and avoidance of excessive leverage.
Anne Miletti, Head of Active Equity, Allspring Global Investments
Trust your intuition. In the early 1990s, I was meeting with a large pager company along with senior members of the investment team. The company was introducing a product that charged consumers by character. We tested it and it came out to $300 a month for me and $500 a month for his senior team members. My intuition, and what I've learned about the company, suggests that the company's subscriber might not be able to afford to pay him $100 a month. We held the stock because we trusted the spreadsheets and numbers of the senior executives. I was young, still learning about the industry, and doubting myself. Even if I was a junior, I could have broken the decision, but I didn't. The company went bankrupt two years later. I sold it before that, but it was a cruel lesson.
Alex Pack, Managing Partner, Hack VC
Investing is a team sport, not the solo work of some crazy, lone genius. Who you partner with matters. Every Buffett needs a Munger, every Horowitz needs an Andreessen.
Thomas Lee, Managing Partner, Fundstrat Global Advisors
I learned years ago: What looks positive for a stock doesn't mean the stock has to go up. It is important to understand whether the good news is already priced in. I was previously an equity analyst covering wireless stocks. I spent hours building models to recommend stocks based on companies that I thought were likely to report impressive earnings. But in many cases, companies with impressive profits did not increase. I learned that how the news compares to investors' expectations is important. Since then, it has become important to my view of the market.
Abby Miller Levy, Co-Founder, Primetime Partners
Patience is very difficult for investors. Longevity, an emerging area of focus for our venture capital fund, is a new category, and new products and services often take time to gain acceptance, especially in regulated markets such as healthcare and financial services. . We are wary of unrealistic claims of rapid market penetration and adoption, and support businesses that solve urgent problems with “must-haves” rather than “nice-to-haves.” I learned.
Shuhei Abe Founder of Sparks Group
In 2002, I pitched a well-known US public pension to a Japanese corporate engagement fund to persuade them to work with companies to change and increase value. I took $200 million in seed money and grew it to about $3 billion. When the global financial crisis happened and the pension fund withdrew its funds in 2008, we had to dissolve the fund. I regret that I stopped the strategy I had planned. Some investments tripled in value after a few years, and others were subsequently acquired. We could have grown up faster and become Japan's KKR & Co. Corporate engagement is currently a very popular strategy in Japan. This regret forced me to never give up on ideas and beliefs that I knew would come true.
Christine Phillpotts, Portfolio Manager, Emerging Markets Value Strategy, Ariel Investments
It is important to understand the key stakeholders, including governments. For example, Nigeria's capital controls and Turkey's unorthodox monetary policies have weighed on currency and liquidity for a period of time. We invested in exporters in Nigeria and Turkey, whose returns benefited from currency depreciation. But for U.S. dollar investors, concerns about the dollar's weakness and the inability to get their money out of the country more than offset the profit growth. Governments in developed and emerging markets do not always make economic decisions with stability and growth at the forefront. And the scale of the disruption is often much larger than investors expected.
William Bernstein, Principal of Efficient Frontier Advisors and author of The Four Pillars of Investing
Understand the relationship between investment capital and human capital. Forty-five years ago, when I was a young neurologist, the human capital of having a stable job was a relatively secure asset, like a bond. Later in life, in the accumulation stage, stocks can be very dangerous for you.series of profit risks [the possibility of hitting a bad stretch early in retirement] Overpacking your portfolio can also sink you. During the accumulation phase, stocks are much less risky. It is impossible to be too aggressive early on because your investment portfolio is only a small portion of your total assets, including investment and human capital. Had I understood that, I might have been richer than I am now, but I might not have been as happy.