Whitmore, who runs the Jupiter Income and Jupiter UK Special Situations funds, is a proponent of long-term investing and thinks it is important to be patient when picking stocks. He is value-oriented, which means his best investment decisions often take time to reach their full potential.
However, he says many investors fall into the trap of blindly backing failing companies in the hope of making back their losses, so as not to lose face on front of their peers.
"When you get it right, the sell discipline is very easy," Whitmore explained. "When the valuation of a company goes above the five-year average, it’s often a good indicator to sell."
"What’s much harder is deciding what to do when you are unsuccessful."
"In my experience, one of the biggest mistakes a manager can make is to suffer from over-confidence."
"If an investment doesn’t work out as they had hoped, many react to it with an 'I’m right and everyone else is wrong' attitude, and buy more and more and more of that failing company."
"If you do this, your portfolio will suffer from gamblers ruin. Instead of moving on, you consume so much capital to push through an idea that’s just wrong."
Rather than selling out completely, Whitmore says he lets dud stocks "wither on the vine" so that they do not affect the overall performance of the fund.
"This way, the winners can pay for the losers, rather than allowing the losers to consume everything," he added.
Edward Bonham Carter (pictured), chief executive of Jupiter, says fund managers must be careful not to allow their competitive nature get in the way of their investment objectives.
"It’s important to learn from the constructive power of mistakes," he said. "Fund managers don’t like admitting to themselves, and even worse to their peers, that they’ve messed up. To lose face is a very powerful thing." "Of course you have to be confident in your judgments, but the best fund managers recognise when to say no. If you can’t do that and you become arrogant, you can be responsible for losing countless sums of money for a lot of people."
The pair’s views were echoed by investment legend Warren Buffett in his most recent letter to shareholders. He said that investors who let their ego get the better of them are destined for failure.
"The usual cause of failure is that [investors] start with the answer they want and then work backwards to find a supporting rationale. Of course, the process is subconscious; that’s what makes it so dangerous," he explained.
"Your chairman has not been free of this sin. In Berkshire’s 1986 annual report, I described how 20 years of management effort and capital improvements in our original textile business were an exercise in futility."
"I wanted the business to succeed and wished my way into a series of bad decisions. I even bought another New England textile company. But wishing makes dreams come true only in Disney movies; it’s poison in business."
While Whitmore, Bonham-Carter and Buffett were referring to stocks in this context, Bestinvest’s Jason Hollands says exactly the same principles can be passed on to investors who hold funds and investment trusts.
"Interestingly I wrote a piece about this in the Financial Times 15 years ago," he said. "The idea of behavioural psychology being the biggest threat to returns works in exactly the same way for private investors as it does for fund managers."
"Often an investor will lose money, and tell themselves that they have to make all their money back before they can sell it, rather than looking at other ways to make it back."
Hollands says fundamental changes in a fund manager’s style are often a good indicator to sell out.
"Sometimes a manager will go through periods of underperformance because their style falls out of favour, so in actual fact they’re performing in exactly the way you’d expect," he explained.
"This is exactly the same with stocks."
"However, in other circumstances the fund is underperforming because something crucial has changed."
"For example, success has led to inflows, which impacts a manager who made his reputation by investing in AIM-listed stocks."
Whitmore has managed the £1bn Jupiter UK Special Situations fund since October 2006.
According to FE Analytics, it has returned 70.42 per cent over this time while its benchmark – the FTSE All Share – and the IMA UK All Companies sector have returned 38.97 per cent and 35.86 per cent, respectively.
Performance of fund vs sector and index since Oct 2006
Source: FE Analytics
The fund is a top-quartile performer over one, three and five years and has beaten the index over all three of these timeframes.
Whitmore recently took the reins of the £1.9bn Jupiter Income fund from industry stalwart Anthony Nutt. Nutt still heads up the Jupiter High Income, though.
Both of Whitmore’s funds require a minimum investment of £500, but while his Income fund has an ongoing charges fee (OCF) of 1.7 per cent, Jupiter UK Special Situations is slightly more expensive with an OCF of 1.76 per cent.