The book that changed my fortunes as an investor
Investing is similar to a game of squash, there are right and wrong plays, hasty and calm decisions. And like every great sportsman you need to be mentally prepared. Bengt Saelensminde shares a simple idea that can make you a better investor.
Man, my heart was pounding so hard I thought it was about to jump out of my chest...
9-8, match point,' Jimbo whelped from his side of the squash court. We were both wheezing and pushed to the limit. Another match hanging by a thread.
We both hate losing. In the markets... and on the squash court.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
We were business partners for two years. In that time, we'd bashed the hell out of each other at lunch-time... or after work... many times.
But neither of us could consistently outplay the other. Competitiveness had driven us both to exhaustion and we'd flat-lined. And that went on for ages.
Things changed, though, when I discovered a secret in a book. It wasn't a book on squash, mind. It was a book about money. And since then I've marked it down as an absoluteinvestment classic.
Today I want to talk to you about the book that changed my fortunes on the squash court... and how one simple idea can make you a better investor.
Re-set your ambitions
It was about 10 years ago and I'd just read Victor Niederhoffer's The Education of a Speculator. Anyone interested in investment should read this book, too.
It introduces a young Jewish lad in downtown Brooklyn whose determination eventually gets him to Harvard and ends up with his own hedge fund. Niederhoffer's approach to investment brings in facets of sports and music as well as life in general.
Though I can't summarise the book in a sentence, there's a theme...
Investment is all about playing the right game.' There's a natural rhythm to sport, music, and especially investment. It's all about consistency. It's about finding the right tempo and making the right moves - NOT being tempted to go for the quick wins.
Going for what looks like an easy win is the most common error in investment. That's the idea I want to get across today.
Never go for the easy trades. Go for the right trades and the win will come to you. And that's exactly what my squash game needed too... I needed to keep playing the right shot.
Watch your game get better and better
Now as it happens, Niederhoffer had been a national squash champion. He uses his experiences on the court to bring to life successful trading. So it was kind of ironic that here was I using his book in reverse and re-applying his ideas back to the squash court...
In squash, nine out of ten shots should be passive. You just play the ball as close as you can alongside the wall - that's the right shot. Trying to smash the hell out of the ball, or playing clever drop shots is a sure-fire way to lose.
What look like easy wins more often lead to mistakes. Sure, you'll get the odd satisfying belter, but over the long-run, mistakes lead to frustration and losses.
Jimbo and I were caught in a desperate battle of trying to crush the other... trying to make every shot a winner. The answer was incredibly simple. Just start playing right and stop trying to win each shot...
When it comes to investment, there are plenty of trades that look like easy wins. They are the ones everyone else is playing. You'll read about them in the press and find loads of investors jumping aboard the latest fad.
The right move on the other hand takes a consistent approach and it takes independent thought. Using sound valuation techniques, it's about applying a winning strategy and sticking to it.
And what you'll find is that playing it right is less stressful. It helps avoid needless and frustrating mistakes - mistakes that could wipe you out.
You've probably heard of Neil Woodford - the star fund manager who runs Invesco Perpetual's equity income funds. He was in the Telegraph last week, and they asked him to comment on his funds' recent run of poor performance. His response was simple, and shows exactly what I mean about playing the right game...
"Valuation is like gravity - it is a principal influence on markets, it will assert itself."
Hisfunds have consistently out-performed the competition and he knows that so long as he plays the right game, his fund will be back on top soon enough.
Get your strategy right
The key then is to develop the right strategy. That's why I've been urging you to keep an investment diary. To note down trades and why you made them. I want you to regularly go back to your diary and assess whether your strategy is right.
If you want some specific help on getting your strategy right, then I'd heartily recommend Precision Guided Investments. It's a weekly newsletter written by Paul Hill - a man with a knack for finding under-the-radar tech stocks long before they are picked by the mainstream press.
I like reading Paul's stuff. His letters can range from anything from space tourism to nuclear waste.
He's just sent over a fascinating report on what he calls False Crash stocks. And I really think this report nails down why his strategy works.
You see the trouble with most investors is that they do not have a head for the technical stuff. They don't know a great deal about valuing stocks. And when it comes to complicated stuff like technology stocks, they really struggle.
That's Paul's big advantage. He is brilliant at both of those things. As a former Electrical Engineer, he knows a great deal more about technology than the average investor. And he picks apart balance sheets for pleasure.
By sticking to under-the-radar stocks that he understands, he's also landed on a strategy that has served him very well in the 20 years he's been investing.
Have a look at this "False Crash" report that Paul wrote recently to see what I mean.
Paul Hill's Precision Guided Investments is a regulated product issued by MoneyWeek Ltd. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Customer Services: 0207 633 3780.
Important Information
Your capital is at risk when you invest in shares - you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. Past performance and forecasts are not reliable indicators of future results. Commissions, fees and other charges can reduce returns from investments. Profits from share dealing are a form of income and subject to taxation. Tax treatment depends on individual circumstances and may be subject to change in the future. Please note that there will be no follow up to recommendations in The Right Side.
Commissions, fees and other charges can reduce returns from investments. Profits from share dealing are a form of income and subject to taxation. Tax treatment depends on individual circumstances and may be subject to change in the future. Please note that there will be no follow up to recommendations in The Right Side.
Managing Editor: Frank Hemsley. The Right Side is issued by MoneyWeek Ltd. MoneyWeek Ltd is authorised and regulated by the Financial Services Authority. FSA No 509798 https://www.fsa.gov.uk/register/home.do
This article was first published in the freeinvestment email The Right side. Sign up to The Right Side here.
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Bengt graduated from Reading University in 1994 and followed up with a master's degree in business economics.
He started stock market investing at the age of 13, and this eventually led to a job in the City of London in 1995. He started on a bond desk at Cantor Fitzgerald and ended up running a desk at stockbroker's Cazenove.
Bengt left the City in 2000 to start up his own import and beauty products business which he still runs today.