“The Art of Execution; How the world’s best investors get it wrong and still make millions”

#books

I've written a short review of "The Art of Execution: How the world's best investors get it wrong and still make millions" by Lee Freeman-Shor. You can read it below:

First published on my website in July 2016

I have just finished one of the best investment books I have read in a long time; it contains some great little gems, which I hope will improve my returns. One never stops learning; I continually strive to become a better investor, and what better way than by learning from the mistakes and insights of others?

"The Art of Execution: How the world's best investors get it wrong and still make millions" by Lee Freeman-Shor, took no more than a couple of hours to read, can be found HERE and comes highly recommended.

Background

The author appointed 45 investment managers to manage concentrated portfolios, valued from $20m to $150m, between 2006 and 2013. He instructed them to invest only in their top 10 ideas, and, not surprisingly, observed wildly divergent results. In this book, he observes the differing methods of the managers; he found that in general, all the managers were much of a muchness when it came to picking stocks; of the 1866 investments made, only 49% made money, but what separated the winning portfolios from the also-rans was execution. Some of the "legendary investors" were only right 30% of the time, but were good at cutting the losers quickly and running/building the winners.

He found that managers fell into five categories. When it came to handling losing investments, they were either assassins, hunters, or rabbits and when dealing with winners, either raiders or connoisseurs.

In short:

An "Assassin" is an investor who deals promptly and unemotionally with his failures; cuts early, or at least at a pre-determined level and moves on.

A "Hunter" tends to watch, analyse and then, at the right time, add to the position to average down and salvage the investment. Many were successful with this strategy, never perhaps regaining the whole loss, but at least reducing its magnitude.

A "Rabbit". Need I say more? Like rabbits in the headlights, they watched the investment continue to fall, neither cutting nor adding. The rabbits tended to have the worst performance by far.

"Raiders" were managers who snatched at any profit they made; 10-30% was enough. The money was then re-invested and, as we saw earlier, only with a 50%ish chance of success.

The "Connoisseur" let the winners run, perhaps trimming now and then, but at least giving the holding decent exposure for the duration. These were the investors who made 100% or more from investments.

The best combination was the Assassin/Connoisseur, and by far, the worst was the rabbit/raiders; they invariably ended up being fired.

In conclusion, an excellent and easy read and hopefully one that will sharpen the investment skills.