20 years of investing: what I’ve learnt, and my best and worst investments | Summary and Q&A

TL;DR

Fund Manager James Thompson shares key lessons, including the dangers of overconfidence and the importance of running winners and having a balanced portfolio. He also discusses recent market trends, the concentration of returns among a few companies, and opportunities in the UK market.

Key Insights

• 🈺 Overconfidence in the investment business can be dangerous, and having a sense of insecurity and doubt allows for a more open mindset and room for change.
• 🙈 Valuation should not always be seen as a science; expensive valuations for growth stocks may be justified if analysts have underestimated future earnings potential.
• 🤩 Running winners and not declaring victory too early has been a key driver of success over the long term.
• 💄 The concentration of returns among a few companies has caused concerns among investors, but there are other companies making significant contributions to portfolio performance.
• 🦮 Thompson learned valuable lessons from his worst investments, which guide him to avoid making the same mistakes twice.
• 👶 Thompson recognizes opportunities in the UK market, considering potential new investments while emphasizing the need for the quality of business rather than solely relying on cheap valuations.

Transcript

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Questions & Answers

Q: What are the key lessons that James Thompson has learned as a fund manager over the past 20 years?

James Thompson believes that overconfidence is a dangerous enemy in the investment business. He emphasizes the importance of insecurity, doubt, and even impostor syndrome to maintain a humble mindset and be open to changing one's opinions. He also stresses that expensive valuations for growth stocks should not always be seen as overvalued, as analysts often underestimate their earnings potential. Lastly, Thompson advises that running winners and not declaring victory too early can greatly contribute to long-term success.

Q: Why does Thompson believe that valuation as a science can be dangerous?

According to Thompson, valuation is more of an art than a science. He believes that investors who solely rely on valuations might miss out on great investment opportunities. He cites Nvidia as an example, where investors initially hesitated due to the relatively high PE ratio but later realized that earnings estimates were underestimated, leading to significant earnings growth and a decrease in the PE ratio.

Q: What were some of Thompson's best and worst investments over the past 20 years?

Thompson mentions that one of his worst investments was in an airline business that went bankrupt in 2007. He also admits to making negative contributions through earlier-stage, speculative businesses with vulnerable business models. However, he counterbalances these with success stories such as UK company Rightmove, Amazon, and Visa, which have been long-term contributors to the fund's performance.

Q: How does Thompson view the concentration of market returns among a few companies, known as the "Magnificent Seven"?

Thompson acknowledges that the concentration of market returns among a few companies has caused concern among investors. He attributes this concentration to the difficulty of finding growth in the current market environment. However, he points out that there is a broader story to tell, and there are other companies like Costco, Microsoft, and Intuit that have made significant contributions to the portfolio's performance.

Summary & Key Takeaways

• James Thompson highlights the danger of overconfidence in the investment business and the significance of insecurity and doubt to create room for change and learning.

• He argues that expensive valuations for growth stocks, like Nvidia, might not necessarily mean they are overvalued, as analysts often underestimate future earnings potential.

• Thompson emphasizes the importance of running winners over the long term, which has contributed more to his fund's performance compared to declaring victory too early and selling winners.