Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Cuffelinks Special 250th Edition 2018

Special Edition 250 includes over 30 market experts sharing a mistake that made them better investors.

Since Edition 1 of Cuffelinks, we have focussed on independent expert insights from high-profile finance professionals to deliver useful ideas to our community, now over 35,000 strong.

It's an important time to learn these lessons, as the 88-year-old founder of Vanguard, Jack Bogle, recently said in a CNBC interview:

"I have never seen a market this volatile to this extent in my career. Now that's only 66 years, so I shouldn't make too much of it."

We had a fantastic response from people we approached, but something new happened this time. Disappointingly, some fund managers were prevented from offering a response by their legal and compliance team. It's a sad state of affairs when a fund manager is unable to admit a mistake, as we're all supposed to learn from them. The question we asked was:

"What is an enduring investment lesson you learned from making a mistake?"

We also had responses asking what a 'mistake' really is, such as:

"What is a mistake in investing? Too often managers admit to mistakes (that reveals their deep humility) that weren't mistakes; rather the market went against them. As in bridge, you can make excellent decisions with rotten outcomes and rotten decisions with excellent outcomes."

One famous local fund manager wrote that identifying a mistake can relieve stress:

"Insights from past failures can help boost performance on a new task – and this study is the first, as far as I know, to explain why. The researchers report that writing critically about past setbacks leads to lower levels of the 'stress' hormone, cortisol, and more careful choices when faced with a new stressful task, resulting in improved performance. The study, published in the journal Frontiers in Behavioral Neuroscience, is the first demonstration that writing and thinking deeply about a past failure improves the body's response to stress and enhances performance on a new task."

Another was more skeptical:

"The harsh truth is that I don’t believe any investor really learns from their mistakes in any meaningful way. By this I mean we can easily avoid investing in the same dud company, but that doesn’t stop us investing in other dud companies. We can then develop personal heuristics that steer us away from all companies that have similar traits to the dud one we lost money on, only to find out that some of them turn out to be great investments. The problem of course is that history never exactly repeats.

The reasons we make mistakes can usually find their roots in the human foibles we learn about in behavioural finance (anchoring, confirmation bias, recency bias, etc), and because we are human we keep making them. And the problem with the behavioural finance work is that it’s a very good descriptor of why we have stuffed up in the past, but offers little by way of prescription for future success. I reckon the biggest mistakes we are likely to make comes from over-confidence."

Investors learn from previous experiences, whether or not they are considered mistakes at the time, and sharing the lessons from market professionals may help our readers.

Graham Hand Managing Editor Cuffelinks

Download the eBook here

 

banner

Most viewed in recent weeks

Australians unprepared for $3.5 trillion wealth transfer

A new report suggests that Australians are ill prepared for the largest intergenerational wealth handover in history. It's estimated $3.5 trillion in assets will be transferred from Baby Boomers to their children by 2050.

Welcome to Firstlinks Edition 534 with weekend update

Many people in the Firstlinks community have been reading my articles and editorials for 10 years or more, and worked with me for decades before that, and deserve an explanation for why I have suddenly stopped writing each week.

  • 9 November 2023

18 rules for ageing well

The rules to age successfully include, 'the unexamined life lasts longer', 'change no more than one-eighth of your life at a time', 'nobody is thinking about you', and 'pursue virtue but don’t sweat it'.

Why the ASX 200 has gone nowhere in 16 years

The ASX 200 is around the same price that it was 16 years ago. The poor long-term performance can be largely blamed on our taxation system, which encourages companies to pay out most of their earnings as dividends.

The challenges of building a lazy portfolio

John Bogle famously advocated a two-fund portfolio of US stocks and bonds. Recently, I tried to create an Australian version of the Bogle portfolio and found that what seems simple can quickly turn complicated.

SAPTO and LITO, or do you really need an SMSF?

Money withdrawn from super after age 60 is tax-free but less understood are arrangements that allows a couple over the age of 67 to earn up to $57,948 per year outside super and pay no tax with LITO and SAPTO.

Latest Updates

Investment strategies

Two proven ways to make big money in markets

Many ASX success stories – like JB Hi-Fi, Lovisa, and AUB – have followed one of two strategies: rolling out single store formats nationwide or consolidating fragmented industries. Here are the secrets behind these business models.

Investment strategies

The bank is still a terrible place to put your money

With the RBA having lifted interest rates by 4.25% over 18 months, many investors now see cash as an attractive investment option. That ignores the silent tax of inflation, which makes other assets better investment alternatives.

Little to fear from APRA's hybrids review

APRA's objections to hybrids are misplaced. If the regulator wants more safety in our banking system, it will come at the expense of effectiveness, and that's why wholesale changes to the hybrid market are unlikely.

Investment strategies

Rates higher = shares lower… is it that simple?

Typically, higher interest rates are associated with lower share market valuations, but not always and the relationship hasn’t been that strong over the long term. Company fundamentals will matter more over the next few years.

Investment strategies

Diversification is not a free lunch

Harry Markowitz said that “diversification is the only free lunch in investing” as holding a broader range of assets can result in better returns without assuming more risk. This has become accepted wisdom - but it isn't true.

Economy

Why Asia remains one of the world's best growth stories

China’s economic slowdown and the resilience of the US dollar have dimmed the lustre of many Asian economies’ strong growth momentum in the past year. But heading into 2024, Asia's growth story should reignite.

Podcast: Property picks, PE update, and Warnes on Michelle Bullock

Charter Hall's Steven Bennett talks through commercial property's challenges and opportunities, Schroders' Rainer Ender on private equity's bright spots, and Peter Warnes on how RBA hawkishness will impact rates and the economy.

Sponsors

Alliances

© 2023 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.