Around a month ago Mark Baribeau, manager of the $632m PGIM Jennison Global Equity Opportunities, claimed that investors who think they can pick a company for the next decade are “arrogant”.
For context, he was describing how he believes chipmaker Nvidia is a must-own stock for investors, with the rise of artificial intelligence (AI) and the ongoing tech revolution making it a key part of the future.
Some argue valuations are too high, but he said that ignoring these stocks is a “classic mistake in financial markets”. However, he added that it was only going to be good for the next year or two.
“Can I sit here and say you have to own it for the next 10 years? That's a dumb statement. Some growth managers do that, but we would never. We're not that arrogant. I can't tell you that it's good for the next 10 years. It's good for the next year or two and then we will reevaluate.”
So I posed the question to Simon Barnard and William Morgan, managers of the Smithson Investment Trust. The duo work at Fundsmith alongside renowned stock picker Terry Smith.
They approach markets with a strategy to buy, hold and do nothing – the exact strategy Baribeau was referring to. And to my surprise they agreed with him.
“You could argue that he is correct – you can’t just buy a company and close your eyes for 10 years and hope it all works out okay,” said Barnard.
Yet he was quick to point out that he is “the opposite of arrogant”. In fact, he called himself and Morgan “paranoid”, scouring reports and research daily for reasons they should sell.
“There are many companies that we own that we follow closely and nothing changes and it is fine, so ultimately we do the worrying for no reason. But we constantly obsess over companies,” he said.
“The only way you can have a long career running money is to remain very humble and assume that something could go wrong. You are always searching and looking for things that could go wrong. Arrogance I suspect would lead to assumptions you are correct and stumbling into landmines.”
Both managers agree that investing in companies forever without any oversight is arrogant, but I would make an argument that the type of investors most likely to fit this description are those that strike it lucky, making big returns on out-there strategies.
We all know people that brag about their wins down the pub, whether it be on the meme stocks in 2021 or those that made a small fortune on cryptocurrency – both of which I openly admit to be ‘missing out’ on.
These assets are more akin to gambling and any investor that believes they have insight and knowledge others do not are, I would argue, bordering into the ‘arrogant’ category.
Short-term day trading is another example of this, especially with the high platform fees that can be run up by constantly making moves. It would take a phenomenal investor to consistently win in this way.
I like going to the horse races on the odd occasion and I play poker once a week. When I win – I tell my wife, bragging about my successes. I can be quite arrogant.
But I am aware that, more often than not, I sheepishly come home and say very little having lost, which is why I only bet a small amount (my poker game costs £6 a week) and never believe I will make my fortune from it.
Of course, there are some that do. And there are some that have made heaps of money on crypto, meme stocks and day trading. I am not saying it is not possible. But for most, it is effectively gambling and is not an approach I am willing to take with my savings. I would suggest neither should you.
However, I will be heeding the advice of the managers above. I have a tendency to sit on the funds I have chosen, without much care and attention unless I read something has gone wrong in the news.
I thought this was sound, but clearly I have been unwittingly arrogant. So I have set up alerts on all my funds and will keep a more watchful eye moving forward.