Books examining different modes of thinking, managing international rugby teams and how most investors’ best ideas don’t pay off are among those that Liontrust managers credit with making them better investors.
In Trustnet’s ongoing The Investor’s Bookshelf series, Robin Geffen, Ruth Chambers, Ewan Thompson and Matt Tonge choose five books that they think all investors will find useful to include in their library.
Thinking Fast and Slow, by Daniel Kahneman
Ruth Chambers (pictured), manager of the Liontrust China fund, starts us off with Daniel Kahneman’s Thinking Fast and Slow, which examines two modes of thought: the fast ‘System 1’, which is instinctive and emotional versus the slower, more deliberative and more logical ‘System 2’. 
“This book, written by a Nobel prize-winning behavioural economist, delves into the psychology behind decision making and the logical fallacies of the human mind. It has made me more aware of the cognitive biases that affect the way information is interpreted and has helped me to reframe information when analysing investments,” Chambers said.
“Through illustrative examples, the author describes how it is often the intuitive ‘fast-thinking’ thought system that is in charge of decision making and how that can lead to poor choices. To name just a few examples: after errors are realised people still fail to cut losses, what recently enters the mind has an outsized influence in assessing options and people ignore the possibility of rare events apart from when one has just occurred.
“By describing these inconsistencies in how we process information, the book encourages us to be vigilant in our thinking and highlights predictable ways in which errors of judgement occur. It is full of lessons on how to overcome biases not just in investments, but also in daily life.”
My Life and Rugby: The Autobiography, by Eddie Jones
Robin Geffen (pictured), head of the Liontrust global equity team, runs a number of funds such as Liontrust Balanced, Liontrust Income and Liontrust Global Alpha. He highlighted the autobiography of Rugby star Eddie Jones a being an important source of insight for him. 
“A remarkable book for the unflinching honesty of the author. His story is extraordinary, tracing from the run-down suburbs of a rugby town in Australia to coaching four different countries at the Rugby World Cup,” Geffen said.
“We learn both stoicism, from a man who so nearly played rugby for Australia but just fell short, to the long term planning and execution of strategy that propelled him from being the winning coach at Super Rugby with the ACT Brumbies to becoming national coach of Australia. That balancing of short-term objectives with a long-term goal is a massive lesson for continued success as a fund manager.
“He went from coaching Australia to a losing final in 2003 to being the assistant coach to the winning South African team in 2007. He later took over as Japanese coach leading them to the 2015 World Cup when they beat South Africa and then took on a dejected England team and coached them to the Rugby World Cup final in 2019. A remarkable range of achievement in the same field akin to managing four very different funds as a fund manager. It’s a valuable lesson in looking at a life’s work from different cultural perspectives.”
Capital Returns, edited by Edward Chancellor
Ewan Thompson (pictured), manager of the Liontrust Emerging Markets fund, believes that this collection of essays from analysts at Marathon Asset Management should have a particular resonance for those investing in emerging markets. 
“Capital Returns places the capital cycle at the centre of the investment process – highlighting how it can often be overlooked,” he said.
“In his introduction, Edward Chancellor notes the general focus on demand forecasts amongst the analyst community, whilst supply response to high returns and invested capital can be more of an afterthought. Certain industries are especially prone to asset growth (for example cyclical sectors such as semiconductors, shipping, mining) and therefore more exposed to boom and bust conditions. Industries (or even countries) with effective barriers to entry for capital lead to more sustainable returns, making them more fertile prospects for long-term investment. Moreover, individual companies that understand the capital cycle and are thoughtful and judicious capital allocators will not only survive, but prosper.
“A collection of essays from Marathon analysts (written between 2002 and 2015), Capital Returns provides tangible examples of how this approach serves to preserve capital across the investment cycle. These insights are particularly valuable lessons for emerging market investors, where investment narratives have long focussed on the unquestionable long-term demand story – a huge and growing population of consumers – whilst frequently glossing over the reality of low barriers to entry and easy access to capital.
“Our focus on 'Emerging Leaders' is similarly rooted in an emphasis on prevailing industry dynamics as a key determinant of corporate profitability, as well as identifying those companies best placed to navigate the often perilous capital cycle.”
Superforecasting: The Art and Science of Prediction, by Philip Tetlock & Dan Gardner
Thompson’s second pick examines the phenomenon of ‘superforecasters’, or ordinary people who have the ability to predict the future with a degree of accuracy that is 60 per cent greater than average.
“We all make forecasts every day - from trivial daily decisions, to life and death risk assessments – but our desire and capacity to consider the accuracy of these forecasts and calibrate our forecasting can be surprisingly low,” the manager said.
“The financial services industry is effectively built around the construction of forecasts – from talking heads pronouncing on mega trends to micro forecasts of company accounts – but Tetlock and Gardner note how there is often very little by way of evaluation as to how accurate these individual forecasts are and how reliable a general record the forecaster might have. To some degree we work in an industry that is highly measured – asset prices ultimately keep the final score – yet the process of attributing performance outcomes to research inputs can often be overlooked. Over what time frame will a prediction play out? What is the probability of each outcome? Was I right for the wrong reason?
“Superforecasting provides an account of the cognitive biases we are all vulnerable to due to hard-wiring in the human brain and seeks to identify those 'superforecasters’ that have proven themselves to be especially adept at assessing information, risk and probability. This approach echoes our idea of 'variant perception' – how is our thinking different to that of the received wisdom, what is the probability of this outcome being true and over what timeframe do we expect this to happen?”
The Art of Execution: How the World's Best Investors Get It Wrong and Still Make Millions, by Lee Freeman-Shor
For the final book pick, Liontrust UK Micro Cap co-manager Matt Tonge (pictured) highlighted Lee Freeman-Shor’s The Art of Execution – which examines how most investors’ best ideas lose money but they still end up being profitable overall. 
“First, a thanks to our head of multi-asset John Husselbee for recommending this book to me,” Tonge said.
“I can’t better the one line book summary from Amazon, so I’ll just repeat it: ‘Over seven years, 45 of the world's top investors were given between $25m and $150m to invest by fund manager Lee Freeman-Shor. His instructions were simple. There was only one rule. They could invest in only their 10 best ideas to make money…’
“The findings outlined in his book – that it almost doesn’t matter how you pick stocks, instead it’s the importance of how you behave once you own them – was one of those epiphany moments in my career.
“When faced with the exact situations Lee describes I often think back to those lessons and try to emulate the behaviours that lead to success and avoid those that lead to failure. I believe any investor, big or small, would benefit from the knowledge contained therein.”