Mint Asset Management portfolio manager, John Middleton, distills decades of investment market experience into its essence…
As a seasoned investor and equity analyst, I’ve learned some invaluable lessons from navigating the ups and downs of the stock market over the years. From the dot-com bubble to the Global Financial Crisis and the COVID-19 pandemic, these experiences have shaped my investment philosophy and approach.
Here are four key lessons that have proven invaluable in my investing journey:
Keep it simple
Growing up in the United Kingdom, my interest in stocks and shares came from my Mum. She has been a canny investor over the years buying into companies where she had direct experience.
For example, she invested in Rentokil – when we had a rat problem, Sainsburys and Tescos – the supermarkets we used, and British Telecom and Vodafone – even though she still can’t work a mobile phone!! This taught me to look for good businesses with great products or competitive advantages and stick with them.
Investing does not need to be complicated if you know what to look for – something I was reminded of more recently by my son. We gave him a laptop for Christmas a couple of years ago, he thought the graphics card was so great that he decided to invest in the company that made it. At the time, I had never heard of that company and couldn’t even spell its name. I can now – it’s called Nvidia.
It’s not a bad to thing to be a bit different
I always knew I wanted to go into the ‘City’ and pursue a career in the financial markets, however, my passion for languages and travel meant that I took a circuitous route.
I love history and different cultures and would not trade my time spent living in France and Russia for anything. Although, the more conventional pathway to a career in finances was economics, business studies or maths.
So, my first attempt at joining the financial community failed. I did a couple of internships (a must for students looking for a job) with stockbrokers and embarked on a postgraduate degree in South Africa to better understand finances. This adventure also had other benefits – in particular it is where I met my wife (a Kiwi backpacker at the time) boogie-boarding down the Zambezi River!
After a lost graduate programme application and a couple of temporary jobs, I finally got my chance and became an equity research analyst at ABN AMRO. While the journey had its highs and lows, I got there in the end and believe that my experience on the way makes me look at things a little differently, which is never a bad thing in my book.
Take every opportunity to learn
I enjoyed the dot-com bubble, but I learnt more from when it burst, even if it meant the research team of which I was a part shrank by a third… overnight. It was mesmerising to see internet stocks double, triple, or even go up tenfold over a three-month period and then collapse, on little more than a few rumours.
As a junior ‘old economy’ analyst, non-one cared what I wrote for 18 months, but this gave me time to better understand the industry and the companies that I covered and focus on the facts rather than the froth.
The madness finally ended with a nasty crash at which point the high-quality engineering businesses that I covered could be bought for a paltry five years of cash flow. Just as months before, a 30-times sales multiple was being peddled as cheap for stocks haemorrhaging cash, with no earnings and little prospect of them. Even if the couple that survived and thrived are now members of the ‘magnificent 7’.
Sometimes the hype is worth it but most things too good to be true prove to be just that. So always make sure you do your work first, have a firm view of how you think a company works before you let others try to convince you otherwise.
Never let a crisis go to waste
I don’t know who said it first, but the old adage ‘never let a crisis go to waste’ holds as true today as it has over the years. The early 2000s were a challenging time for the world, but even more so for an aerospace and defence analyst. 9/11, SARS and the Gulf War being the perfect negative trifecta for companies with exposure to civil aerospace markets.
The lessons learned from seeing how companies reacted to worst-case scenarios, what they needed to do to survive, and the focus the market had on costs, underlying cash flow, and balance sheets have paid dividends over the years through the GFC, Covid, and into the current economic downturn.
Management are far more forthcoming in adversity than in the good times and answer the hard questions properly. So, you always need to take advantage of this candour to better understand what makes their businesses tick.
The joke ‘economists have successfully predicted nine of the last five recessions’ is amusing and, for me, also highlights another point – rather than try to predict a recession, it is better to know how to react when one arrives and be ready to take advantage of opportunities that arise from it.
The four lessons cover the importance of keeping investing simple by focusing on quality businesses, embracing a unique perspective, continuously learning from market cycles, and seizing opportunities during crises.
By keeping things uncomplicated, thinking differently, studying market dynamics, and capitalising on adversity, investors can not only weather market storms but also uncover promising opportunities.
These lessons, gleaned from first-hand experiences, offer a practical and insightful guide for navigating the ever-changing landscape of equity markets with resilience and a strategic mindset.
Disclaimer: John Middleton is a Portfolio Manager for the Mint Australasian Equity Fund. The above article is intended to provide information and does not purport to give investment advice.
Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement.
