What the experts wished they knew when they started investing

Fri 03 May 2024

Tony Featherstone

Consulting Editor

Understanding emotions and the power of compound returns were big lessons.

Key points

Human emotions can influence sharemarkets and stock valuations.
Long-term investing potentially allows returns to compound over time.
‘Start investing early’ and ‘don’t be intimidated by markets’ were other learnings provided by experts for this article.

Cadence Capital’s Karl Siegling wishes he had studied psychology at university. The veteran investor believes shares become cheap or expensive due to human emotions. Read people, he says, and you can read the market.

Future Generation’s Caroline Gurney wishes she had invested more in her twenties, rather than spending her hard-earned savings on travel. At the time, she didn’t fully understand the power of compound returns and long-term investing.

Ord Minnett’s Vera Lin says she overcomplicated things when she started investing. Like many new investors, Lin tried to pick stocks, time markets and make short-term gains. She now favours simple, long-term investment strategies.

These and other experts interviewed by ASX Investor Update have a long list of things they would have done differently when they invested for the first time.

That’s not to say their approach failed. Rather, it shows that even investment experts make occasional mistakes, or wish they did things a little differently when they started investing. The key is learning from those mistakes and growing as an investor through experience.

With that in mind, ASX Investor Update asked experts about what they wish they had known when they invested for the first time. Here are their responses:

Understand how emotions drive markets

Karl Siegling, Chief Investment Officer of Cadence Capital, a listed investment company, says it took him years to understand why stocks become overvalued and undervalued. One of the factors Karl noticed was the impact of human emotions.

“Investors are always told to ‘buy low and sell high’,” says Siegling. “So, we study finance or accounting at university and learn different techniques to value companies. There’s this myth that all we need to do is learn the correct formula to value companies and we can lead a rich, healthy and wealthy life.”

After a lifetime of investing, Siegling believes stocks become cheap or expensive based on hope, fear and greed rather than mathematical formulas.

Karl Siegling, Chief Investment Officer of Cadence Capital

“The collective emotions of individuals, which is ‘the market’, play an extremely important role in investing. The sooner that investors understand how important emotion is, and how likely we are as individuals to make decisions based on emotion, the sooner they will become better investors.”

Siegling’s other main learning was to understand how industry cycles can take years to play out.

“In the movies, everything in the sharemarket happens very quickly. In real life, when you buy a share, you are buying part of a company. Companies move much slower than people realise. When a business starts improving, that improvement can play out over many years. It sometimes takes years for a stock to go from being unloved to being loved."

Felicity Thomas, Senior Private Wealth Adviser at Shaw and Partners

Avoid emotional investment decisions

Felicity Thomas, a Senior Private Wealth Adviser at Shaw and Partners, has a different take on emotions and investing. For Thomas, the goal is avoiding rash investment decisions based on emotion rather than fact.

“Emotional investing often leads to poor investment decisions, like buying share during euphoric phases [for the market] and selling low during panic phases,” she says. “Keeping a disciplined approach can help investors stick to their investment plan.”

As a young investor, Thomas learnt to only invest funds she did not need for living expenses and always keep some cash on the sideline. Her other learning was to be patient with investing.

“A lot of investors want quick wins but it is important to maintain a long-term perspective. Despite short-term volatility, history has shown that the sharemarket tends to grow over time.”

Invest rather than speculate

Arian Neiron, CEO of VanEck Asia Pacific, an issuer of Exchange Traded Funds (ETFs), says he has learned two key investment lessons over the years. The first is the importance of research.

“As Warren Buffett said, ‘don’t rent a stock, buy a company’,” says Neiron. “Company fundamentals become critical when the tide turns [the market falls]. Investors need a strong reason why they invested in a company in the first place, and to be able to ‘stress test’ their thesis [when things don’t work out as you expect].”

Headshot- Investing in China’s ‘New Economy’ - IU March 2022

Arian Neiron, CEO of VanEck Asia Pacific

Neiron’s second lesson was the value of portfolio diversification.

“Taking a diversified approach means investors put risk management front and centre in their investment plan. I learnt to keep those visionary growth investments [speculative companies] as satellite positions rather than in the portfolio core. For speculative investments that go on a momentum run, I also learned to take profits. Investors can really fall in love with an investment, but they need to know when to fold and move on.”

Vera Lin, Private Wealth Adviser at Ord Minnett

Don’t be intimidated by markets

Vera Lin, a Private Wealth Adviser at Ord Minnett, says it’s easy for new investors to feel intimidated by financial markets and investment experts.

“It can feel overwhelming because there are so many investment options to choose from and you can end up with ‘decision fatigue’. Over the years, I’ve learned that investing is much simpler than many people realise and that there are lots of good investment experts and advisers out there who can help you.”

Lin’s other learning was the power of an uncomplicated investment strategy.

“I fancied myself as an analyst and an economist when I started investing,” says Lin. “I was trying to pick stocks, predict macro changes, and time the market, only to realise that approach is so unnecessary and unsuccessful for most people."

Start early

Caroline Gurney, CEO of Future Generation, which has two philanthropic Listed Investment Companies on ASX, wishes she had become serious about investing earlier.

“I was fortunate to grow up in a family where my father had always invested and encouraged my sister and me to do the same,” she says, “The trouble is, when I began to earn my own money in my twenties, I spent too much of it on weekends away and buying things. Hindsight is a wonderful thing, but had I known about the power of compounding returns over years and decades, I would have invested more and spent less, and started my investing journey earlier.”

Caroline Gurney, CEO of Future Generation

Gurney’s other learning was the power of investment education.

“When you begin investing, you need to commit to learn about investing as you go. Anybody can do it. It doesn’t mean you need to spend hours reading investment books on the weekend. Even simple things like reading your annual superannuation statement or reading the quarterly report from a fund you invest in can make a big difference to your market knowledge.”

Gurney says new investors should consider their values when building an investment strategy.

“I passionately believe in the power of philanthropy and the potential to create a stronger culture of giving through investing. The key is aligning your investment choices when you start with your values. Looking back, I didn’t think enough about my personal values when I began investing and thought philanthropy was something only for wealthy people. I didn’t realise that investors, large and small, can potentially build wealth while helping others at the same time through listed philanthropic funds.”

Take advantage of free investment education resources

As Gurney notes, there’s a lot of high-quality, free information available to help new investors get started. But some investors might not know these resources exist or believe the information is too complex or a chore to read.

The Australian Securities Exchange has a range of free online courses on shares, bonds and ETFs for beginners. ASX Investor Day, the exchange’s premier education event, is another great learning opportunity for new, intermediate and experienced investors.

So, too, is the ASX Sharemarket Game, which allows investors to test their skills and knowledge with virtual cash. Reading ASX Investor Update each month is another useful way to stay up-to-date with market trends and insights from investment experts.

Whatever your investment knowledge and experience, education resources on the ASX website can help. The ASX online share course, for example, has 11 modules that each take 10-15 minutes to complete for beginners. The course is an easy, enjoyable way to learn about the basics of sharemarket investing.

About the author

Tony Featherstone, Consulting Editor

Tony Featherstone is Consulting Editor of ASX Investor Update and a former managing editor of BRW, Shares and Personal Investor magazines. The views expressed in this article might not reflect of those of ASX.

DISCLAIMER

This content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article, consider its appropriateness and accuracy, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article.