Fourth, begin and end every investment decision with risk. This is not saying that you should be risk-averse as sometimes embracing high-risk ideas is the best way to invest. But it does mean never making an investment decision without having thought through what could go wrong and what the impact of that would be, and also understanding how every investment in a portfolio interrelates. Correlation is a funny thing, and more often than you may think two seemingly unrelated ideas have high correlations – mixing art with science here is the best way to think about constructing your portfolio. But perhaps having thought about it, risk is most important when everything seems to be going wrong. It is far easier to have courage in your convictions, and stick with underperforming holdings, when you really did think through what the worst-case scenario was before making that investment. It is too easy to sell out of something in panic, but you can avoid this behavioural error by thinking about risk from the start.
As John Maynard Keynes said: “Successful investing is anticipating the anticipations of others”.
And that is it – I am out of words. Thanks for reading.
James Bateman is head of multi-manager and multi-asset portfolio management for Fidelity Worldwide Investment
