I must admit that I regret one of the options I’ve gone for. The more I’ve learnt about investing, the more I believe that a value approach – or in other words, targeting areas that are cheap and unloved – is the best way to make money over the long-term.
I bought the Aberdeen New Thai IT earlier this year as I saw its high discount as a good value play, forgetting that it’s a portfolio that has delivered in excess of 1,000 per cent over the last decade.
Even the manager himself, Adithep Vanabriksha, admits that such returns are very unlikely over the next decade, given that valuations are much more expensive at this level.
The trust started brightly with its discount narrowing as expected, but I held onto it for too long. Greed, it seems, took over. It has struggled badly in recent months, and is slightly down since I bought it.
This isn’t to say it’s a bad investment of course – I wouldn’t be surprised to see the highly respected team at Aberdeen keep up the good work and deliver stellar relative performance from hereon in.
However, I’ve realised that the reasons for buying the trust were misguided: I’m no discount expert, and I’d be very wary of buying an investment trust on such a short-term whim again. I have no particular view on the Thai economy or equity market, except for the fact that both have done very well lately, so buying in the first place was a big error.
I’m in the process of eyeing up a replacement for it, which I’ll talk about at another time, but last week I was horrified to hear myself say: "I’ll decide once the Aberdeen trust is back to zero."
This is, of course, one of the big no-nos when it comes to investing. Waiting for an investment to make back its losses – a form of "anchoring" – is a psychological mistake many investors make and one that experts have repeatedly flagged up during FE Trustnet interviews.
Thankfully I was reprimanded by my colleagues immediately, who haven’t allowed me to forget it since.
To illustrate just how painful my mistake could have been, here are a selection of funds that have failed to "make it back to zero" at least a couple of years after reaching a previous high.
Technology funds
The ultimate example of anchoring working against investors has been with technology funds.
On the face of it, the IMA Technology sector has had a great time of it in recent years and is up over the last decade. There are many investors who bought just over 10 years ago who will not look on performance as fondly, however.
The devastating effects of the dotcom crash mean that none of the tech funds with a long enough track record have managed to break even since the beginning of 2000.
Performance of funds since Jan 2000
Source: FE Analytics
So, if in the early stages of 2000 you got a little squeamish about the tech sector but thought you would wait until you’d made your money back… you’d still be waiting now.
The worst performer, Invesco Global Technology, is still down a whopping 67.4 per cent since the turn of the century. When you consider that many funds have had to close over the 13-and-a-half-year period, the picture is even more bleak.
India funds
Indian equities had a fantastic time of it in the mid-2000s, with many delivering triple-digit returns between 2004 and 2007. A number of fund launches duly followed, with demand for products very strong.
Worries over inflation, poor corporate governance and a political deadlock have all contributed to the poor performance of the MSCI India index in recent years, however.
According to FE data, all but the five crown-rated First State Indian Subcontinent have failed to get back to zero at any point since the beginning of 2011. The worst performer over the period – HSBC GIF Indian Equity – is down more than 50 per cent.
Natural resources funds
Once again, natural resources and commodity funds had a great period in the 2000s, but have had a tough time of it since the turn of the decade. Our data shows that the vast majority of investors in this area have failed to reach the heights of early 2011.
Performance of funds since April 2011
Source: FE Analytics
Only a couple of gold-focused funds – BlackRock Gold & General and Investec Global Gold – managed to get themselves back to even at the back end of 2011, but since then they have fallen very hard indeed.
Well there you have it – I’ve learnt my lesson. If you’ve made a genuine mistake and want to switch out of an investment, waiting for it to hit an arbitrary level just because you want to save face is not the answer.
