Obviously being pretty much perfect (note massive sarcasm) I struggled to come up with any sensible suggestions, but here below are the classic mistakes that have caused pointed fingers and sleepless nights in the last few years.
The key lesson that I have learnt in my career is that just because something looks cheap, it doesn't mean it can't get cheaper. Beware the value traps.Every investor goes through a period of losing fingers catching falling knives and for me this was in Japan.
As Keynes said: "The market can be irrational longer than you can stay solvent."
At the start of 2011 we began to aggressively build Japanese equity positions, believing the market was outstandingly cheap.
Sadly we were then hit by the Tohoku earthquake and another 18 months of dire economic performance and falling markets.
Performance of indices 2011 to 2013
Source: FE Analytics
The key lesson would be to always expect the unexpected in asset markets, but also to ensure that you have a diversified portfolio.
Do not allow any one risk to be a dominating influence on either volatility or performance, regardless of how cheap an investment might look.
Another key lesson that I have learnt is to not fight the central banks. Listen to what they tell you, such as the lead-in period to Jean-Claude "la clune" Trichet’s surprise rate-hike in mid-2008, when the former European Central Bank chief telegraphed to markets that he would raise rates and nobody believed him.
You also shouldn’t fight their power, particularly when they are acting in unison, as they seemingly are now.
We have been guilty of selling assets too early, believing that the central bankers, in our case the Bank of England, were wrong in their pursuit of lower gilt yields.
Our mistake in selling gilts too quickly was made in the expectation that investors would not allow negative real yields in safe haven bonds, even in a panic.
Of course they did. The lesson to be learnt is that when panic sets in, anything is possible; sometimes it is best to cast off the shackles of valuation discipline and play the momentum game.
Performance of sectors over 5yrs
Source: FE Analytics
The classic mistake made by investors and the one area that the journalist particularly wanted me to elaborate on is that of illiquidity.
Many investors were trapped in property funds in 2008 and regularly suffer through the illiquidity of small cap equities and small investment trusts.
The lesson would be to always scale your exposure and think about what might happen in an extreme market dislocation – will you be able to get out when you really need to?
We are currently extremely worried about some of the behemoth corporate bond funds, which have grown to a huge swollen size and might not be able to provide the liquidity that investors expect, were the sentiment towards the asset class to change quickly.
We would advise that an investor should never hold more than 10 per cent of a balanced portfolio in assets that are non-readily realisable.
We currently only invest in two funds that are not daily dealing, which have a combined exposure of 4 per cent, and believe we could sell more than 90 per cent of assets on any given day.
We would also advise any investor to check with the unit trust manager about prior liquidity constraints and seek advice from an investment professional if unsure.
Thomas Becket is chief investment officer of Psigma Asset Management.
Performance of fund vs sector since launch
Source: FE Analytics
He also heads up the Psigma Dynamic Multi Asset fund, which has beaten its sector average with less volatility since its launch in September 2008.
The fund of funds requires a minimum investment of £1,000 and has an ongoing charges figure (OCF) of 2.53 per cent.
Click here for the original article by Alex Paget last month. FE Trustnet also highlighted Becket’s concerns regarding the commercial property sector in a separate piece.
