Get a sharp investor talking for long enough, and their stories often become revealing. You’ll undoubtedly hear about their wins but also their most painful mistakes. We asked financial pros to tell us about experiences that left a mark—and, more important, what they managed to learn from them. Their responses have been edited for clarity and length.
What was your toughest lesson?
Bill Gross
Philanthropist and investor who co-founded Pacific Investment Management Co., where he ran the world’s biggest bond fund
I learned an expensive lesson about the dangers of leverage early on. In fact, I bought US Treasury bonds with 10-to-1 leverage just months before my career at Pimco began. I had $10,000 equity savings from my earlier experience playing blackjack—from which I learned that any bet should be limited to 3% of your liquid net worth. I totally disregarded that by buying $100,000 of 30-year Treasuries, which within weeks declined and wiped out half of my savings. I would make many mistakes during the next 40 years in the bond market, but none as big, percentage-wise, as this one. Lesson? Gambling belongs at the casino. Investing requires prudent use of capital and avoidance of excessive leverage.
Ann Miletti
Head of active equity, Allspring Global Investments
Trust your gut. In the early 1990s, I was meeting with a leading company in pagers along with a very senior member of our investment team. The company was introducing a product that was going to charge consumers by the character. When we tested it, it came to $300 a month for me and $500 for the senior team member.
My gut, and what I was learning about the company, said that their subscribers could not afford even $100 a month. We held the stock because I trusted the more senior person’s spreadsheet and numbers—I was young, still learning the industry, and doubted myself. I could have trumped the decision even though I was more junior, but I didn’t. The company went bankrupt after two years. We sold it before then, but it was a brutal lesson.
Alex Pack
Managing partner, Hack VC
Investing is a team sport, and not the solo work of some mad, lone genius. It matters who you partner with. Every Buffett needs a Munger, every Horowitz needs an Andreessen.
Thomas Lee
Managing partner, Fundstrat Global Advisors
I learned many years ago: What appears to be a positive for a stock does not mean the stock has to go up. It is critical to understand if the good news is already priced in. I used to be an equity analyst covering wireless stocks. I spent hours working on models and recommended stocks based on what I believed were companies likely to report great earnings. But often companies posting great earnings did not go up. I learned that it was how the news compared to investor expectations. That’s been important to my view of the markets ever since.
Abby Miller Levy
Co-founder, Primetime Partners
Patience is very hard as an investor. The emerging area we focus on in our venture capital fund, longevity, is a new category, and new products and services often take longer to be accepted, especially in regulated markets like health care and financial services. We’ve learned to be wary of unrealistic claims of rapid market penetration or adoption and to champion businesses that are “must haves” and solve urgent problems versus “nice to haves.”
Shuhei Abe
Founder of Sparx Group Co.
In 2002, I pitched a well-known public pension in the US for a fund on Japan corporate engagement—working with companies to convince them to change and boost value. I received $200 million of seed money, which I grew to about $3 billion. The global financial crisis came, the pension fund pulled their money in 2008, and we had to dissolve the fund. I regret that I stopped the strategy I had been developing. We had investments where the share price tripled a few years later, and one that was later bought out—we could have grown faster and become the KKR & Co. of Japan. Today corporate engagement is a very popular strategy in Japan. This regret inspired me to not give up on ideas and convictions that I know will play out.
Christine Phillpotts
Portfolio manager for emerging-markets value strategy, Ariel Investments
It’s important to understand key stakeholders, including governments. For example, Nigeria’s capital controls and Turkey’s unorthodox monetary policy have pressured currency and liquidity for periods of time. We invested in Nigerian and Turkish exporters whose earnings benefited from currency depreciation. But as US dollar investors, that depreciation, and concerns about the inability to get money out of the country, more than offset growth in earnings. Governments in developed and emerging markets will not always make economic decisions in the best interests of stability and growth. And the magnitude of the dislocation is often much larger than what investors forecast.
William Bernstein
Principal, Efficient Frontier Advisors and author of The Four Pillars of Investing
Understand the relationship between investment capital and human capital. Forty-five years ago, I was a young neurologist, whose human capital, being in a secure profession, was a relatively safe asset—like a bond. Late in life, in the decumulation phase, stocks are very risky for you. Sequence-of-return risk [the possibility of hitting a bad stretch early in retirement] can sink even an overstuffed portfolio. In the accumulation phase, stocks are much less risky. It’s impossible to be too aggressive early on, since the investment portfolio is a tiny portion of overall wealth—investment capital plus human capital. Had I understood that, I’d be a lot wealthier today, though likely not much happier.
—With Lisa Du
This article was provided by Bloomberg News.