Lessons From My Investing Career

With age comes some insights and as we head into 2025, now is as good a time as any to look back on some of the lessons from my investing career that have served me well.

On the occasion last year of the publication of a (almost) comprehensive collection of my Investment Outlook essays going back to the late 1970s, I allowed myself some time for reflection. Not over the humility of calls that I got right or wrong, but what can be drawn from them now.

In the big picture, American capitalism is in relative terms more reminiscent of our wild west than some economies. It allows for risk and risk taking — backstopped of course in many ways by government and central bank policies but flexible enough to promote the modern entrepreneur in the quest for a profit. That promotion provides for, even encourages, risk and innovation and in most cases allows for not just success, but outright failure and bankruptcy. It is this lesson, I believe, that an investor must recognise and learn as we wind our way up the long-term mountain of portfolio management in this “new age”.

The combination of leverage and time is a critical one to recognise in any portfolio blueprint. Leverage can be dangerous, but is less so given enough time for fundamentally sound investment ideas to work out. Just ask Warren Buffett. His belief in superior equity returns over the long term has been anchored by the balance sheets of Berkshire Hathaway’s insurance companies. The capital from those companies has been more or less impervious to being “called in” at inopportune times. Insurance premiums and even policy loans and long-term debt have semi-permanence to them that overnight lending and subscriber capital does not. And so Buffett — who should be recognised for his brilliance as a financial architect as well as an investor — has prospered while John Meriwether of Long-Term Capital Management notoriety temporarily stumbled in the face of collateral calls on the company’s trading positions. Buffett has shown that time is a vital third dimension in financial architecture.