8 January 2015

How To Succeed In Investing

“You don’t have to be a genius to invest well” – Warren Buffett

It is not surprising that so many have written so much on investing. Having worked so hard to build savings, it is natural that we would want to maximise the benefits that we receive from them. So we have academic treatises on modern portfolio theory, the efficient frontier, seeking alpha, beta and smart-beta investment, the Black-Scholes model and so on.

All of this complex analysis can be quite intimidating for your average investor. Fortunately, it is safe to say that it is also almost all superfluous to the average investor’s needs. As almost all finance professionals will tell you (even if only in our weaker moments), investment success depends far more on issues of personal character and choice than on complex theoretical modelling and formulae.

Accordingly, we take the first edition of Investor Insights for 2015 as an opportunity to remind ourselves of some of the key characteristics of the successful investor. Amidst all the resolution-setting and self-reflection that occurs at the beginning of a new year, we hope that this will assist you chart a course through the investment world for the year ahead. We warn you at the outset, however, that there will be little here that is a surprise to our long term readers. In our view, when you’re on a good thing, stick to it.

Our two keys to investment success

As we have done in the past, we start our discussion by remindinger our readers that our approach is not for everyone. Our view of investment is that, for most people, it should be boring. As Nobel laureate, Paul Samuelson, once said "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas."

On the other hand, we also believe that our approach is best suited to the needs of the vast majority of Australian investors. You know, those people who have many demands on their time and attention and who value reliable, steady investment performance. For the most part, we believe that these investors are better off sticking to some simple, straightforward and commonsense principles that have been proven over time.

1. Discipline

It will surprise no one that we believe that discipline is a critical factor in any investor’s success. An ability to generate surplus income is, after all, what frees up the capital for investment. This implies that the first step to investment success is the discipline to live within our means. As Wilkins Micawber said in David Copperfield:

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."

Once an adequate savings plan is in place, the lifelong challenge for investors will be to adopt a sound, appropriate investment strategy and stick to it. Too often, we hear the tales of misery from investors who changed what they were doing to jump onto the latest ‘fad’ investment. In the recent past these fads have included extreme levels of leverage, exotic and unsustainable ‘agri-schemes’ and other taxed-based strategies and highly complex derivative investments. Oftentimes, a trusted and independent financial adviser can provide invaluable assistance in ensuring that we keep to our overall investment strategy.

2. Realism

The second key is realism. To be confident of eventual success, investors have to approach their investment realistically. At the highest level, this means that we have to accept that we are each ultimately responsible for our own investment outcomes. If we do not understand an investment, how can we possibly take responsibility for its performance? In turn, this implies that a useful strategy for most investors is the KISS principle (Keep It Simple, Silly). Since, unlike Olympic divers, investors do not get bonus points for degree of difficulty, the emphasis must be on ensuring that we have a strong understanding of all our investments and their risks.

This approach can be difficult in a financial world that is groaning under the weight of its own complexity, but it is fundamental. It may, of course, reduce the ‘universe’ of investments available to us. But is that such a bad thing? Are there not enough, more straightforward investments to meet our investment needs?

The second aspect of realism is keeping our expectations under control. We see so many investors shoot up like stars into the night skies, chasing stellar returns, only to come crashing down with a thud. Net result from all the drama: zero.

By contrast, we have always believed that getting rich slowly never goes out of fashion. The most reliable path to prosperity and independence is consistent reliable returns and the avoidance of significant capital losses. We have previously quoted the well known author on investment, Charles D Ellis, and his overall philosophy of investment.

"As all grandparents and most parents know -- and as most grandchildren will come to know -- the real test of a good driver is simple: no serious accidents. And as all flyers know, safe, dull -- even boring -- is the essence of a good flight. The secret to success in investing is not in beating the market any more than success in driving is going 10 MPH over the posted speed limit. Success in driving is being on the right road and moving at a reasonable speed."

Finally, realism requires that we will accept that – even with the most scrupulous discipline and realistic investment strategies, sometimes things will go wrong. Individual investments will underperform and may even result in losses. Realism dictates that we put into place certain safeguards to protect our portfolios from the harm such events can cause. Yet we still hear on the news from time to time of people losing their life savings in the latest investment fraud or collapse.

One important risk management tool is diversification. Diversification is simply the term of art used in investment circles for ‘not putting all your eggs in one basket’. When applied intelligently, diversification means that we are not relying excessively on one single investment, or a small group of investments, to perform well. As we have explained previously, at La Trobe Financial we take the issue of diversification extremely seriously and apply it at a number of levels to ensure that our own portfolios are properly protected against market down turns.


The year 2015 presents investors with many uncertainties. But that is routine. Any year that looks riskless only does so in retrospect. Investment is the art of managing uncertainty. Discipline and realism are two of the characteristics that are key to doing so successfully.

STOP PRESS: La Trobe Financial Quarterly Investment Teleconference

Scheduled: 3 February 2015 - 12:00pm AEST

Invest 30 minutes of your time to hear from the manager at our quarterly investor teleconference.

We will discuss the domestic and international economy, with our famous ‘headwinds and tailwinds’ report. We will also update you on any developments for the manager and our fund.

Full details may be viewed: www.latrobefinancial.com.au

We hope that 2015 is a safe and prosperous year for you and your loved ones.

Whatever market you’re in... we hope it’s profitable.

Best regards,
Randal Williams, Chief Investment Officer &
Chris Andrews, Head of Funds Management
La Trobe Financial Asset Management Limited

La Trobe Financial is one of Australia's leading independent credit specialist Fund Managers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 123 staff and has managed over AUD$10Billion covering over 100,000 investment grade assets since inception in 1952.

Copyright 2014 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer

The following awards and ratings were given to the Pooled Mortgage Option within the La Trobe Financial Mortgage Fund and may be viewed on our website

Ratings And Awards

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La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. The PDS is available on our website www.latrobefinancial.com or by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you.
- The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund and may be lower than expected. Investors risk losing some or all of their principal investment. The investment is not a bank deposit.
- Past performance is no guarantee of future performance.
- Withdrawal rights are subject to liquidity and may be delayed or suspended.
- The award and ratings were given to the Pooled Mortgages Option within the La Trobe Australian Mortgage Fund.
- Any rating is only one factor to be taken into account in deciding to invest.

La Trobe Financial Services Pty Limited - Australian Credit Licence Number: 392385
La Trobe Financial Asset Management Limited - Australian Credit Licence Number: 222213

1. Zenith's "recommended" rating indicates that it has high confidence in the manager meeting its objectives. The Zenith Investment Partners ("Zenith") ABN 60 332 047 314 rating referred to in this document is limited to "General Advice" (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product(s), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. To view the relevant research information, please visit www.latrobefinancial.com The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective.
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