4 investing rules these top fund managers live by

Is there a rule or principle or piece of advice from a mentor that helps govern how you engage with markets? When I was cutting my teeth as a trader, I had the following stuck to my computer screen: 

“Trade what you see, not what you think.”

It reminded me that while I could dream up myriad possible outcomes for a particular decision or trade, I was usually better served focusing on what was real and observable. 

And whilst the rule probably never made me much money (buying is always the easy part) other than keeping me in winning positions a bit longer, it certainly saved me a lot of money by forcing me to exit positions that weren't performing.  

On a recent call with L1 Capital’s James Hawkins, who runs the L1 Capital Catalyst Fund which employs an activist strategy, I got talking to him about the rules and advice that have stayed with him throughout his career. 

As the conversation deepened, Hawkins shared that, like many investors, there are a few such reminders posted around his office, but there is one that carries significant weight: “Activism is a game of patience.”

Hawkins explained that while markets are becoming increasingly short-term, his investment theses can take 12 to 18 months to play out. It was a simple observation, but also the genesis for this article.

Ahead of Livewire Live, I asked Hawkins and fellow speakers Vihari Ross (Antipodes Partners), Arden Jennings (Ausbil) and Dushko Bajic (First Sentier) to share one rule, guideline or piece of advice that has stuck with them throughout their investing careers.

Here’s what they said.

JAMES HAWKINS – L1 CAPITAL

Activism is a game of patience

Markets are becoming increasingly short-term. Robots, algorithms and quants have a growing influence on share prices, particularly around results, but investment theses still take time to play out. For us, that will typically be 12 to 18 months.

The lesson is not to mistake a lack of immediate share price recognition for a broken thesis. 

Ultimately, earnings and fundamentals win out. If you have done the work and can remain patient, you will be rewarded.

VIHARI ROSS – ANTIPODES

Price is what you pay, value is what you get

Warren Buffett's famous line is an important one because Value isn't a badge a company keeps forever, and the price on any given day doesn’t tell you what a company is worth, but if there is a mismatch, it could be a great investing opportunity. 

Prices move, industries change, and something bought cheap can quietly become expensive. Being razor-sharp on valuation and honest when a case has run its course has served me better than any single winner. 

Buy where you're paid for the risk, sell when you're not, and recycle into the next opportunity.

ARDEN JENNINGS – AUSBIL

You’re only as good as your last result

We are pretty hard on ourselves, probably harder than others are on us, and we live in every decision we make, good or bad. My simple rule is that you’re only as good as your last result. 

Being an active fund manager is a humbling game, particularly in the mid-, small-, and micro-cap end of the market. 

Ultimately, we are manufacturers of investment returns, so our number one priority is to deliver strong, risk-adjusted returns for clients over the medium- to long-term. Simple but not easy. 

You need to live and breathe markets every day - and have a passion for it - to succeed.

DUSHKO BAJIC - FIRST SENTIER

I promise to make you wealthy slowly

The line above was a sign pinned to my desk partition when I started out in funds management. It was the promise made to clients by the most experienced portfolio manager in the team.

Soon to retire, and still doing his analysis with pen, paper, and a calculator, he urged me to fill my head with knowledge before my pocket with money, to compound our clients' wealth slowly but surely off the back of research and a feel for management's intentions.

To above all, be in service to our clients.

Don't miss these speakers at Livewire Live

You can hear more from James, Vihari and Arden at this year's Livewire Live, which will be held on 22nd September at the Art Gallery of NSW. See the full agenda here.