Following on from the last article about growth vs value as two investing strategies, here are lessons that beginner investors can take from some of the most well-known women in the investment world on how they invest their money and their best pieces of advice. One such example is Cathie Wood, CEO of Ark Investment Management. Wood studied Economics and Finance at the University of Southern California and then began managing money all the way from analyst to portfolio manager to CIO.
Her company launched its own ETF, characterised by its non-specific sector allocation to try to capitalise on a broad range of markets. Moreover, the ETF mainly focused on disruptive technology companies, who use existing successful technologies and innovate by improving them or replacing them with better, cheaper or faster products. Wood, as an active investor, looks for companies with huge growth potential, purchasing young Tesla as a hallmark investment.
However, last year was not the most successful year for Cathie Wood and Ark Invest. Many of its holdings steeply declined and the fund lost customers as a result; this tested the strength of Wood’s active investment strategy. Wood made new investments during the tech sell off despite criticism.
A second fascinating woman in finance is Mary Callahan Erdoes, CEO of JP Morgan Asset & Wealth Management since 2009. Her work primarily involves retaining and growing clients’ assets. As a result, she has increased client assets at JP Morgan Asset & Wealth Management to over $4T.
Her advice, as she said in an interview with David Rubenstein, is that first of all you should not invest into something which cannot be explained to you in simple terms. You should also start saving early to have an impact, because only over long periods of time does investing become very successful with less risk. When it comes to risk management, people should never excessively risk the money they have worked hard for. This stress test can be carried out as a measure of portfolio diversification. If one position heavily declines in the worst case scenario, the rest of the portfolio holdings should be able to salvage a bad investment.
In finance, networking, lobbying and the influence of office politics make people like Erdoes or Wood very successful. This is not easily applicable to the average retail investor, but it is important to mention to understand top investors’ success stories. Specifically, networking is key because of the private information which might not be as available to the public. Lobbying and politics are two factors that you can only predict and incorporate into your investment strategy if you have the relevant information as an established institutional investor.
An obvious, but often easily forgotten factor that should not be overlooked is the actual product(s) the company offers, not just the company and its potentially good management. Taking a closer look at the products a company offers, as well as the product life cycle is vital. This cycle shows the development from its introduction to the withdrawal of the product from the market. The four stages are introduction, growth, maturity, and decline. If a company’s product is relatively well established and has had huge success, it is now in the maturity stage and the market might soon become saturated. If the company does not innovate a new product or add-ons, its sales will drop thus hurting earnings. Hence, this might not be the best investment.
These pieces of advice from some of the most renowned investors are invaluable as their experiences help smaller retail investors, like us, find the right investments and avoid the wrong ones. Echoing one final piece of advice from Mary Callahan Erdoes, “if something is too good to be true, there’s a high likelihood that it is”.