The Lewis Hamilton of investors
Posted on April 16, 2007 by Richard Beddard
Filed Under Ramblings |
Third in Australia, second in Malaysia, second in Bahrain. It’s never happened before in Formula 1, but Lewis Hamilton, has won a place on the podium in his first three motor races. The fact that he’s a Brit makes his sporting achievement all the more remarkable. No doubt he put lots of work into lesser competitions, but obviously he’s a natural.
Deborah Wothers writes an investment blog. It’s not quite the high octane-world of Formula 1, but bear with me, because in drawing your attention to Deborah’s blog, Lewis’ story is relevant.
I’ve been following Deborah’s blog ever since she left a comment on ours. I criticised the use of stock screens to pick stocks, and she’d agreed. What brought us together was the idea that the human brain can be a superior picker of stocks than a computer algorithm.
Deborah develops theories about companies and markets and backs them. Here’s an example of an income stock that didn’t fit. Like me, you and every investor she’s part of a huge experiment in wealth creation (for some, of course, it’s wealth destruction), but it’s not an unthinking part. That’s one of the reasons her blog’s worth following.
It was reading one of her earlier posts, dating from last October, that I discovered that Deborah is a supply teacher who describes investing as ‘one of her recent hobbies‘. Judging by her first post, she may not have even intended that investment be the main theme of her blog. It reveals a tidy mind, though.
I emailed Deborah to find out how I could have been so impressed by the blog of someone so new to investing. It turns out she’s a natural:
I had been thinking about it for a while but I really wasn’t sure how to start. I found… my background has made me a natural.
I have a chemistry major, a business minor, an education degree and a couple extra years of courses in other areas. I also have 5 years of banking experience, some experience working in industry, oil and gas research, Xerox research, analytical chemistry lab, in plastics. I have enormous health promotion experience working to prevent tobacco use.
When I worked in the banks we had record high interest rates so I’ve seen honest, hard working people lose their homes and although I am new to investing on my own, I went the financial adviser approach thinking that I could just let them look after my interests and within months I had lost 1/3rd of my savings.
So, even though I am new to investing in stocks on my own, I am not new to knowing the hardship of losing your hard earned wages.
And she’s doing very well:
I doubled my retirement savings in 9 months and I doubled money I started playing with on margin in 4 months - I leveraged that and I’ve since taken out what I started with and decided to not leverage at this point. I just started investing part of my husband’s portfolio in January and I’ve managed to increase his portfolio as a whole by about 27% since then.
Is she the Lewis Hamilton of investing? Fortunately investing is not like motor-racing. Lots of us can be winners. It’s early days for Deborah, and for Lewis. Already fans who saw a progression from third, to second, to first, were undone by his failure to pass Felipe Massa in Bahrain. Investors know nothing is inevitable.
Being an investor, and not a motor-racing fan, I’ll be following Deborah’s blog more closely than Lewis’ website. But being a Brit I won’t shut the door on him altogether 
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10 Responses to “The Lewis Hamilton of investors”
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Very flattering post Richard.
And, you are right that I didn’t intend to just write about investments when I started my blog.
I anticipated that I would write about more issues of social justice when I started and things that just make no sense to me what-so-ever.
Ah, well I can see how you went from social justice to the stockmarket. There’s plenty of things about the market that make no sense whatsoever - lucky for us you’ve decided to turn your mind to it!
Many thanks for your link to Deborah Wothers blog. As you say, she is a natural. She a bit like Warren Buffet on overdrive.
I think she must also be a great 8th grade teacher (even if her students do not want to become investor’s themselves :- ) )
Thanks Robin,
I may not be one, but I can spot one :-). I’m on the look out for investors talking sense on their blogs, so if you find any please let me know - richard[dot]beddard@iii.co.uk.
Hi Richard,
I am not one either (I am more of a mechanical investor as it takes a lot less effort)!
However I have read a few books on Warren Buffet and it seems (to me) like she is applying the techniques which he is known to apply. While I kind of understand what Warren Buffet does, I have always known I would never have the expertise (or time) to apply them in a practical way. However Deborah seems to have cracked it.
I am somewhere between the two, Robin.
I keep a portfolio of big US-listed stocks (currently Home Depot, AT&T, Nokia, New York Times, Gannet, Eagle Materials, Joy Global and Pfizer) which I select in a semi-mechanical way looking for growth, income and recovery situations using fairly fuzzy but relatively consistent criteria.
And I keep a portfolio of usually small UK stocks including Inchcape (happily it was small when I bought it, and isn’t any more), HMV (getting smaller all the time), Churchill China, Marchpole, ATH Resources, Computerland, RM, and Northern Recruitment.
I mention them by name just to show you what I do - not to recommend them. Some of these shares I bought many years ago.
The rationale is quite simple I think. The range of larger company stocks is much greater in the US and information about them is much better than in the UK, which makes quick decisions without too much additional research easier.
Picking out smaller company situations is easier in the UK than the US though because I live here. I like to talk to management, see the product, and do more ‘analysis’. That way I’m learning the business approach to investing all the time.
I have to admit that running the UK portfolio is much harder work. On the other hand, I get more out of it.
Thanks for your candid response Richard.
I did have a long reply prepared but realised it would probably be too boring to post!
Anyway, I am glad you have found some investments you are happy to hold for the long term.
Regards
Too boring to post!? I tell you, I don’t let that stop me
Come on… dig it out of your trash can!
Hi Richard, here it is…
Firstly, I am worried this is going completely off-track from the original post. There is simply no comparison between what I do versus what Deborah does. She is far more skilled. However I picked up on the following sentence in the introduction:
“What brought us together was the idea the human brain can be a superior picker of stocks than a computer algorithm.”
While I do not doubt this, I am kind of relying on a computer program to do better over the long term, if only because it is completely systematic. It also depends on who you compare the performance to. We are not all stock picking geniuses!
Below is a summary of my current investing ‘experiment’ and a few observations about financial journalism at the end, which both annoy and amuse me.
I only invest in funds and, since the May 2006 correction, I have been trying hard to:-
1) Fathom the depths of risk and reward
2) Understand the benefits of diversification and asset allocation
3) Identify the signs of fund management quality
4) Test the concepts of fund momentum
5) Try to eliminate my fear of bear markets!!!
I know that the answers I have found are incomplete; however, I had a stab at encapsulating the ideas into a computer program (including a good does of bear market fear :-)) and seeing what happened. I have been using the program since 5th Sept 2006 to determine my SIPP investments. The current return is about 17% over 8 months which is a bit better than the major indices but this could also be down to luck.
What has struck me, however, during my research, is how much bad information there is out there about fund investing, often from respected financial publications.
I thought I would list my top 10 pet-hates which I must have read at least once during the last 6 months.
1) Anything which says that pound cost averaging is great because you are buying stocks at a cheaper price - complete baloney!
Anything which does not make it clear that fund quality matters when assigning your asset allocations. If you pick a dog fund then you will not get the desired results.
2) Anything which tells you to work out your risk aversion without explaining what that really means
3) Anything which then recommends an asset allocation for your given ‘risk’ with absolutely no justification.
4) Or even worse, anything which tells you where you should invest without any indication of how much to put in each area
5) Anything which tells you to invest for at least 5 years without also telling you to rebalance/switch at least once a year
6) Anything which does not make it clear that almost all the damage that is done in a bear market is because you stayed invested for the long term in the same funds
7) Anything which says to invest in Japan or the US because they are ‘due for a recovery’ (I am due for a big pay raise but this does not make it happen).
9) Anything which suggests that a novice investor should try to be contrarian. Under-performing funds tend to keep under-performing from what I have seen.
10) On the contrarian note, an expert who observes that other experts frequently get it wrong, and then promptly recommends the current popular sectors.
End of rant .
Hi Robin,
Don’t worry I think algorithms can be better than the human brain too! It depends on the algorithm, and it depends on the brain. A bit like Kasparov and Deep Blue, although that might be overcooking it if we are talking about my brain v. your algorithm
Have you seen the STAR portfolios on the main site. It’s a mechanical scheme for picking stocks that has stood the test of time (literally - John Mulligan has been running it for decades and I think that’s more valid than back testing).
I’d be fascinated to hear how you encapsulate those ideas into an algorithm.
Incidentally, your rant made me chuckle. And groan. There’s an old saying, “Don’t let the facts get in the way of a good story.” I have a feeling it’s going to inspire a blog from me.