Financial Lessons for Parents as Children Go Back to School
As children in Britain prepare to return to school, there are valuable financial lessons that parents can learn from their investment managers. We spoke to some of the top investment managers in the country to find out the most important lessons they have learned and how they have applied them in their own practice.
Lesson One: Too Much Debt Makes Companies Vulnerable
Richard de Lisle, manager of the VT De Lisle America Fund, learned the importance of avoiding excessive debt from his early investment experiences. At the age of 16, he lost his hard-earned money on a risky bet. He was influenced by his father’s losses in the stock market and his aunt’s success following tips from newspapers.
“I read everything on my paper rounds and did well from Patrick Sergeant in the Daily Mail and Jim Slater in The Telegraph. Those were my favourites,” de Lisle explains. “Yes, the Mail had a hand in my career.”
However, de Lisle’s enthusiasm for the stock market led him to invest in a company called Court Line, which eventually went bankrupt due to excessive debt. This experience taught him the importance of avoiding high levels of debt when investing.
Lesson Two: You’re Almost Always Wrong Before You Are Right
Laurence Hulse, manager of Onward Opportunities, learned a valuable lesson during his internship at Barclays Capital. He was taught that you are likely to be wrong initially when making investment decisions.
“Other than in the unlikely event when you buy at the very lowest price or sell at the very highest price to the penny, you have got to be prepared to be wrong initially,” Hulse says.
He emphasizes the importance of not making sudden changes based on short-term market movements and instead focusing on the long-term potential of investments.
Lesson Three: Work Out Whether You Are Investing…or Gambling
John Husselbee, head of multi-asset at LionTrust, learned a valuable lesson from his father about distinguishing between investing and gambling.
“My father taught me that whenever speculating at the racecourse or a casino, work out beforehand how much money you are prepared to lose betting, then put that amount in a separate pocket to treat as a sunk cost. Whatever is left in that pocket at the end of the day is your good fortune,” Husselbee says.
He emphasizes the importance of not chasing losses and walking away if luck is not on your side. This lesson applies to both gambling and investing.
Lesson Four: It’s Always Darkest Just Before Dawn
Ian Lance, fund manager at Redwheel, recalls a despondent lunch in 1992 as Britain was about to crash out of the European Exchange Rate Mechanism. He realized that his mortgage payments were higher than his combined salaries and the stock market was crashing.
However, shortly after this gloomy lunch, Lance learned that the market can quickly recover and look towards the future.
“Markets look forward and will peer through the gloom to the sunlit uplands,” he says. When everyone else is feeling despondent, it might be a sign that things are about to improve.
Lesson Five: You Don’t Know as Much as You Think You Know
Jamie Ross, portfolio manager of Henderson Eurotrust, learned the importance of focusing on the key question of what makes a company good. He emphasizes that knowledge is not the same as understanding and that investors can sometimes suffer from familiarity bias.
“Even experienced investors can sometimes miss the wood for the trees and suffer from familiarity bias – feeling more comfortable investing in something you ‘know’ lots about,” Ross says.
He encourages investors to always question and analyze their investments to ensure a deeper understanding of the company’s fundamentals.
Lesson Six: Take Expert Advice With a Pinch of Salt
Edward Allen, investment director at Tyndall Private Clients, advises caution when following investment experts’ advice. He highlights the biases that authors may have and the often irrational nature of the investment world.
“Understand the biases of an author if you are going to follow their advice and remember that for every balanced, well-reasoned argument for doing something, there will be many others for doing the opposite,” Allen says.
He encourages investors to be skeptical and critical when analyzing investment advice, as experts can be wrong and the market can behave unpredictably.
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