Mr Lee Freeman-Shor from asset manager Old Mutual Global Investors once conducted an interesting exercise: He gave 45 of the world’s top investors capital to invest on the condition of just 1 rule – they could only invest in their 10 best ideas with the given capital.
This exercise was done over a 7 year period spanning from June 2006 to October 2013, and Freeman-Shor was surprised and shocked after reviewing the results. He found that only 49% of the very best investment ideas made money. Additionally, some of these legendary investors were only successful 30% of the time!
This meant that the chances of them being right on their ideas were worse than tossing a coin and betting on heads coming up every time! Freeman-Shor was also fascinated that some of his chosen investors could still make a sizable return on capital despite being right in only 1 out of every 3 investments.
How could they make lots of money if their ideas are wrong most of the time? Mind you, these were the brightest professionals in the City and Wall Street, armed and equipped with high quality information, brilliant armies of analysts, and able to leverage off sophisticated technology.
Freeman-Shor decided to investigate and analyse every single trade his chosen managers made over this 7-year period, and he recorded his amazing findings into a wonderful and aptly-named book – “The Art of Execution“!
“In the process I discovered that successful stock market investing is not about being right per se – far from it. Success in investing is down to how great ideas are executed. I have come to understand that if successful property investing is all about ‘location, location, location’, success in equity investing is all about ‘execution, execution, execution’…
… you don’t even have to worry about whether an investing idea works or not if you focus on how to invest in that idea: how much money you allocate to it and what you will do when you find yourself in a losing or winning position.”
In short, it’s all about money management and the execution of ideas. The author described that he discovered obvious behavioural patterns among the investors chosen during his investigation, and grouped them into 5 various groups:
- The Rabbits
- The Assassins
- The Hunters
- The Raiders
- The Connoisseurs
The various types deal with losses and winners differently, and the author goes on in detail to cover the actions that characterised these various types, with the first part of the book covering the management of losing positions, and the second part covering the management of winning positions. In particular, the ‘Conoisseurs’ are the role models that Freeman-Shor thinks we should all aspire to. However, the author also emphasised the vital point about being aware of your own personality and temperament when it comes to adopting and refining money management techniques.
Behavioural biases are also described in the book as the author recorded and analysed the mistakes of his chosen investors. He also provides recommended courses of actions that serve as snippets and takeaways for readers to learn from.
Here’s an interesting chart in the book that the author provided:
Freeman-Shor’s book reinforces what titans in the investing world like George Soros, Leo Melamed and Paul Tudor Jones have mentioned once, that winning in the markets is all about money management!
The book is also highly endorsed and rated by investment professionals and practitioners including Dirk Enderlein from Wellington, Crispin Odey from Odey Asset Management, Dennis Bryan from FPA Funds and James Inglis-Jones from Liontrust.
If you have some experience in the financial markets, you’ll be surprised as to how familiar the habits/actions recorded in the book seem to be. You may have went through a similar experience in your personal investing as well.
Overall, the book is a succinct and easy read that appeals to all investors of various philosophies and strategies! What’s more, its lessons are directly and immediately applicable!