The best investing learnings of 2019

Here's what 2019 taught these experts, and how they plan to leverage this learning in 2020.
By Larissa Fernand |  30-12-19 | 
 
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About the Author
Larissa Fernand is Website Editor for Morningstar.in. She would like to hear from you and welcomes your feedback.

In New Year’s resolutions that could take you far, I explained how I picked up some really smart pointers from my colleagues in Mumbai, London and Chicago.

Here I have picked up a few colleagues and investors to share their perspective.

What is the advice you have for investors in 2020?

I love sports. The competition, the anticipation, the drama, the athletes, the gossip – all of it sucks me in. Sports are either team sports or individual sports. Team sports like cricket or football require the collective effort of a team to win. A great player can be on a bad team and the team will still lose. In team sports the credit for a good season or the blame after a bad season can be cast across the entire team.

Individual sports like tennis or golf rely on one person's efforts. Yes, they still have coaches and trainers around them but on game day their success and failure depend on their individual effort and decision making. The individual bares the full weight of success or failure. Individual sports can be isolating even when you’re winning.

In 2019, I had two friends shut down their investment funds. One managed capital for 13 years and the other for 18 years. In each case, the performance wasn’t terrible – within a percentage point of the market averages. One was forced to close his fund because a large investor pulled their capital out. The other manager closed down from mental exhaustion. I asked him what he meant, and he said. “Even the wins are lonely.”

Investing is a lonely game even if you have a team around you. I would encourage every investor to support your fellow investors. When someone realizes a big win in the portfolio, congratulate them and help them celebrate their victory. When an investor is winning, lift them up. When an investor is hurting, lift them up.

Investing is hard. It is a lonely game. But it doesn’t have to be.

What is one principle you want to pay heed to in 2020?

The one principle or trait I have been thinking a lot about recently has been patience. Too often, I’ve been quick to react, or course correct. Yet, I have observed that oftentimes challenges naturally resolve themselves without intervention, saving precious time and emotional energy.

What did the market teach you in 2019?

In 2019, the market taught me a lesson in humility. This is the same lesson it shared in all the years prior and will continue to reinforce in all those to come.

What has been your most prominent observation of the market in 2019?

The most significant learning this year has been that a broad bear market and a narrow bull market, can both happen simultaneously. Who could have thought that we would get a Jekyll-and-Hyde market like what we saw in India?

What it basically shows us is that economic power is getting concentrated in the hands of a few companies, all because of the widespread economic crisis in India. Industry after industry, has seen large scale reduction in supply, which is driving business to the survivors.

What this market also shows us is that staying flexible in thinking is one of the biggest attributes of successful investing. Keep an open mind, remain agile, don't develop very rigid views of what the market must be doing, instead of what it is doing.

Most investors lose simply because of becoming hidebound in their thinking.

Markets change. Markets evolve. So must our investing style.

What did you learn in 2019 that you will implement in 2020?

In 2018, I took out a subscription to non-profit magazine Ethical Consumer and it made me think I should invest some savings I had in an ethical fund. I thought: why not put this money to good use, instead of letting it sit sadly in my bank account earning virtually no interest? I always wanted to have “an impact” on the world around me, and I felt that my monthly donation to Doctors without Borders wasn’t enough.

But, I never did it – partly for lack of courage and knowledge, and partly through inertia and just never getting around to it.

I didn’t know much about investing and funds at the time but working at Morningstar has taught me the most important lesson: you don’t have to be a millionaire to invest, everyone can do it. Now I have a lot more confidence, I have started to invest in some stocks, and 2020 will be the year I finally invest in some ethical funds.

What stock picking advice do you have for investors in 2020?

Morningstar has seven investment principles that guide all of our investment decisions. While the most important is undoubtedly that ‘we put end investors first’ it is difficult to place one above the other.

My belief is that the most important to remember in 2020 is that ‘we take a fundamental approach’.

When the economic, political and market background is noisy, it is easy to forget that the role of an investor is to select assets that are likely to provide an attractive return to its owners. Returns must always be considered in the context of the risk to your capital as an owner of the asset. This, in turn, can only be achieved through careful research. This is necessarily slow, laborious and much less exciting than predicting the near-term future based on the current news. However, it is an essential feature of a successful investment approach, as it enables investors to behave differently from other market participants.

The ability to take a longer-term view, remain focused on valuation and behave differently from the crowd of other investors is especially important when valuations or sentiment reach extreme levels. While we may not have reached these extreme levels in many markets yet, 2020 may create situations where it will be important to have the foundation of fundamental research in order to make good long-term investment decisions.

What is your year-end reflection with regards to investing?

The story most had written entering 2019 was to prepare for transition and turbulence. Those worries were stoked by the volatility we saw late 2018. While some markets have struggled this year, it has hardly been the washout some predicted, with a number of styles, sectors, and regions up smartly for the year.

My learning in 2019 has been to distrust intuition and resist the pull that a good story can exert. It was easy to come out of 2018 believing that the markets would skid and interest rates would spike, as that’s the trajectory we were on and extrapolating to form patterns is reassuring. In that sense, the narrative — ‘it’s all going bad’ — is a form of confirmation bias, to be avoided.

This new year, I plan to pay heed to rebalancing. With equities outperforming bonds yet again, U.S. stocks surpassing foreign stocks, large-caps beating small-caps, and growth topping value, it’s quite possible investors’ asset allocation is off kilter. Rebalancing brings the asset allocation back into line.

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