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August 18, 2022

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Investors: How the best investors make money even though Lee Freeman-Shore is wrong


veteran investment manager Took Freeman-Shore says that all successful investors share some common traits that are critical to their success.

Noise They believe that successful investors have the skills to be wrong most of the time and still make money because their performance depends largely on what they do after they buy the stock and over time. How to deal with winning and losing situations.

“The investment ideas of some of the greatest investors on the planet today are wrong most of the time, and yet they make a lot of money. It is because of some key habits of execution that they cling to religiously when they find themselves losing. Or in winning situations,” he wrote in his book “The Art of Execution.”

Art of Execution Key to Success

Shor analyzed the investments of 45 investors between 2006 and 2013, each of whom he assigned between $20 million and $150 million to management, with strict instructions that only them among their 10 best ideas to make money. allowed to invest. After analyzing 30,874 trades made by these professionals during the study period, they found that the successful ones adopted similar execution habits.

“If success in property is all about “location, location, location”, then I understood that success in the stock market came down to “execution, execution, execution” of great ideas. Or, as in the great inventor’s has been held responsible for Thomas Edison“Vision without execution is hallucination.”, he said.

Who is Lee Freeman-Shore?

Lee Freeman-Shore is a researcher, author and a renowned investment manager with over 16 years of investment experience. His fund management career has seen him successfully design, build, develop and manage an innovative fund range and team that has generated millions in revenue annually and over £1 billion in AUM at its peak.

Lee Freeman-Shore was born. Happened in Nottingham in 1974 and graduated from Nottingham

University with Bachelor of Law Degree. He started his career as an independent investment advisor at Chiltern Financial Services Limited in 1999 and joined in 2001. Alexander Hall Associates where he was the head of investment.

He has also authored a famous investment book, “The Art of Execution”, where he examines the habits that separate successful investors from others and explains how investors can use these traits to increase their profits. Huh.

focus on your portfolio

According to Shor, investors fail to deliver the return they can generate because they fail to return their winners and instead think there is safety in diversification, when in fact they focus on their portfolio. Better to focus.

Many investors believe that diversified portfolios represent less risk than a concentrated portfolio of stocks, according to Lee.

“However, the reality is that what you are doing is swapping one type of risk for another. You are exchanging company specific risk (abnormal risk), which is your risk, for market risk. Can be very less depending on the type of company the company is investing in. (systematic risk). The risk is not reduced, it has been shifted,” he said.

5 different investor tribes

In his book, Shor classifies investors into 5 different “tribes” based on their behavior in relation to losing and profitable positions.

rabbitSuch investors neither buy more shares nor sell their holdings when they lose money. Once the initial assumption was made, they were very slow to change their opinion about the stock.

killers-These types of investors sold lost investments that fell by a certain percentage or that fell by any amount and showed no signs of recovery after a certain period of time.

Hunter– This type of investor invests a small amount in the beginning and with a plan to buy a lot more shares when the price falls. They aren’t even afraid to sell if it becomes clear that they made a mistake.

expert– This type of investor makes high-confidence investments, holds on to them for a long time and takes small profits along the way

attackerThese types of investors have a habit of taking profits very quickly instead of letting their winners run. They take profits as soon as it is practical to do so.

Which Investing Tribe Should You Strive To Be?

According to Shor, investors deal with losses by being “rabbits,” “killers,” or “predators.” Meanwhile they deal with profit by becoming a “connoisseur” or “raider”.

Shor believes that investors should strive to be a “killer” or a “predator” when losing money on a position and be a “connoisseur” when making money on a position and that they should at all costs try to be a “rabbit” or “predator”. Being a “raider” should be avoided.

If investors are losing money, what should they do?

Shor says that there is a high chance that investors with great ideas will lose money, so before they invest even a little bit in the investment idea, it is essential that if they find themselves in a losing position. So there should be an action plan for what they will do. ,

According to Shor, when losing positions, successful investors plan to be either killers or hunters.

On the other hand the average investor who has no plan and as a result becomes a rabbit.

make a plan of action

According to Shor, if investors want to be successful, they have to “materially optimize” when they lose money, which means they either need to cut their losses and take a hit before they lose too much money or They need to invest a lot of money in an idea.

Shor says that before investors invest in an idea, they must have a predetermined action plan that will govern their actions after the initial investment, and they must have the discipline to stick to it.

“Not having a plan, or doing nothing (rabbits) or doing very little is a character trait of a loser. The problem with doing nothing is that it opens up the possibility of losing big. That is, you ditch so deep.” Dig that you can’t get out of it,” he says.

What should investors do in case of a win?

Shor says that while being in a profitable position, investors need to be highly-convinced, hold them for long periods of time and take small gains along the way (Connoisseur).

They should avoid taking profits too quickly instead of letting their raiders run.

Winners Checklist

Shor has come up with a checklist that can help investors maximize their returns:

1. Invest in the best ideas-1-2 Ideas can generate maximum profits, many situations create the risk of adding losers and dragging down your performance.

2. Position size matters- Be prepared to add to a position, so don’t take an absolute position from the start.

3. Be greedy when winning – don’t sell too quickly.

4. Take Action on Losing – Either Sell or Add More, Don’t Stop. Make a plan to adapt when faced with challenges.

5. Invest only in liquid stocks so that you can take advantage of opportunities.

how to achieve investment success

According to Shor, the key to success is adopting the habits of successful investors when taking action to win or lose.

“I’ve seen the enemy. It’s made of rabbits and raiders. If you see someone from one of these tribes while investing, know that you could face a sad ending. Make sure you Invest with hunters, killers, and connoisseurs. Over time, these tribes will take care of you, keep you safe, and make sure you prosper.”

(Disclaimer: This article is based on the book “The Art of Execution” by Lee Freeman-Shore)


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