Author Archives: Fiona Lüling

Influential Women in Finance

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”.

Value and Growth Investing Methods

For many people who start investing, it is difficult to figure out the most important criteria in making their investment decision. In addition to knowing basic investing vocabulary, it is also helpful to understand some of the basic investing methods. Star investors like Warren Buffett and Cathie Wood are famous today for their value and growth approaches to investing, respectively.

Warren Buffett is one of the most famous investors worldwide and is known for his strategy of value investing. Buffett is the CEO of Berkshire Hathaway and has more than half a century of experience. His net worth now amounts to over $115.5 billion. One of his secrets to success is that he started investing when he was unimaginable eleven years old. However, that is not realistic for most people to achieve since interest in finance often develops at a later stage. That being said, the lesson to be learned is that there is no time to lose when it comes to starting to invest. Success most likely comes in the long run. Buffett’s success also lays in his acquisition of 60 companies which now account for Berkshire Hathaway. Buffett first contact with value investing was through his former mentor Benjamin Graham at Columbia Business School. He first applied and defined this strategy.

The core idea behind value investing is to first determine the intrinsic value of a company and then compare the value of the company to the current stock market price. When also comparing the stock price to that companies’ competitors, one can see if the stock is underpriced. Then, a decision can be made as to whether a company is worth investing in.

When looking at a company from a value investing point of view, one must first look at the management and fundamental quality of a company before looking at the price. One should be able to see whether the company has a leading, experienced team, and if they have a track record of overcoming challenges. A long term strategy is key with this investment method since one must believe the quality of the business behind the stock will push up the price; short-term price falls mean value investors can buy the same business at a cheaper price.

Growth investing, meanwhile, is all about a fast approach to get to the desired price target. Obviously, like the name already predicates, the most important criterium is fast growth in comparison to the market, apparent through higher than average returns. Companies which show these characteristics are often younger firms in futuristic markets, such as electric vehicles. Because growth companies tend to be younger, investors often do not get dividends when investing in companies like this; rather, the company’s profit is used to reinvest back into the company.

Each of these investment methods offer a different way to view a business and its investment decisions. One can look for stocks selling at discounts based on a fundamental analysis, or one can look for a stock that is poised for rapid price growth. These strategies are often used by successful investors in the financial world, especially women like Cathie Wood. Stay tuned for the next finance article that will delve into inspiring women in the world of finance.