Diversified Portfolio Capital Asset Management

In the summer of 1999, I joined an investment bank to work on their client service team. In four short months I experienced how “putting all your eggs in one basket” can destroy wealth accumulated over a lifetime in a matter of weeks.

Our US Technology Fund launched in the spring of 1998 and by the summer of 1999, it was up 500%. The Daily Mail money section had just rated it as a “best buy”. 

Like all investment bubbles, most of the inflows came within a few months of the peak. In January 1999 investors put just £5m into our technology fund – in January 2000 they ploughed in £238m. 

I spent my days confirming eye-watering portfolio valuations to clients. We couldn’t write the dealing slips out quick enough. All hail the genius fund manager.  

And then it all came crashing down. From £4.76 a share to £0.45p a share in a heartbeat. I spent my days telling people that their wealth had been cut in half (or worse). Thousands of people’s retirement plans busted.  

A couple of things have come into view these last few months that draw parallels with that period.

Investing in X is a “no brainer”

I heard this a million times in late 1999.  It is everywhere right now.  Record high investment markets, crypto currency, and the increase in the use of self-trade platforms (powered by lockdown) have brought investing back into the public consciousness.

A good friend recently asked me to look at his portfolio. He had moved it from a low cost, globally diversified portfolio to three company shares – Apple, Amazon, and Spotify. His retirement fund – resting in the hands of three companies.

When I asked him why he had moved into such a concentrated group of companies – he told me that a few of his friends had been making good money selecting and selling technology stocks and that given that these three stocks were “only going to go in one direction” it was a “no brainer”.

Of course – the truth is – nobody knows what is going to happen in investment markets today, tomorrow, or next week – but what we do know is that holding a broadly diversified portfolio of investments, over the long term, has been a proven successful investment strategy for millions of people.

Why place the hands of your financial future in three companies when you can own the world’s best companies (including the three mentioned) for 0.25%?

I mentioned our US Technology Fund – co-managed by two individuals who made regular appearances on the tv, radio, and print. Welcome to the rise of the “star manager”.

The readiest example of this period was the launch of New Star Asset Management who filled every advertising board in the city with pictures of their team. In a few years, the business and their funds collapsed, losing millions of pounds of investors’ money.

Looking to successful investors and entrepreneurs for market advice is hardly new. Plenty of people swear by Warren Buffett’s legendary market advice. But social media has given rise to a new version of this phenomenon. YouTube influencers are pulling in millions of pounds each year in exchange for their investment guidance. Last week my taxi driver told me that he had taken out a loan to buy crypto currency.

Remember – you should be the hero of your story – not an investment manager – and not an influencer.

As a species, we’re a greedy beast. We always have been and always will be. Our memories are too short, so getting burned once doesn’t preclude us from getting fleeced again. If you want to learn how we can help you invest wisely, and stay the course, read about our Intelligent Investing programme here.

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