RACHEL RICKARD STRAUS: Road less travelled may be a sound investment (2024)

My partner James and I were driving along a winding country road in north Norfolk a couple of years ago in the peak of summer. The sun was belting down and I was longing to get to our destination so I could jump in the sea.

So I was furious when, as we approached a junction, a huge, hay-laden farm vehicle pulled out in front – forcing us to slow to a snail's pace. The next turn-off was 20 miles away, overtaking was too dangerous, and we grumpily resigned ourselves to chugging along behind until then – frustrated and overheated.

But after a couple of minutes, the vehicle suddenly veered off into a field, leaving the road ahead clear. I can't tell you how surprised (and relieved) I was. I had been so quick to imagine spending 20 miles behind the blasted thing that I hadn't considered an alternative.

This memory comes up again and again when I speak with fund managers about investing and the outlook for their sectors.

It is a trap that investors so easily fall into: we develop such a set view of how the road ahead looks, it blinds us to the alternatives.

Sometimes we are blindsided by changes that come seemingly out of the blue: the global pandemic shutting down whole industries, the war in Ukraine pushing up energy costs.

But we are just as capable of being caught out by changes that are – in hindsight – as obvious as the fact that a farm vehicle could veer off the road into a field. For example, the fact that pent-up demand post-Covid as well as billions of pounds of government stimulus would push up inflation.

Even the most feted fund managers can be surprisingly myopic.

Baillie Gifford European Growth Trust had almost doubled its investors' cash in just two years to July 2021. But its winning strategy of investing in high-growth companies came unstuck when interest rates started to rise. The value of its holdings dropped and, within a year, the fund was almost back to square one again.

Thankfully things have improved recently, and it is up around 25 per cent over five years.

So how can we manage this inability to see plausible futures while investing successfully over the long term?

One option is getting to know your own weaknesses.

This is the approach taken by Mick Dillon, who co-manages the Brown Advisory Global Leaders fund. Over breakfast a fortnight ago, he told me that he and his co-manager Bertie Thomson keep a journal of their investing decisions – and then sit down with a coach every three months to analyse their decision-making.

For example, their coach noticed that when a holding falls in value by 20 per cent, Mick and Bertie usually journal in their diaries that they should take action, but then don't – and it later turns out they should have done.

So they made a rule that if a holding dropped by 20 per cent, they had to act: buy more or sell.

They have found this process of self-reflection so fruitful that they are now starting to look at how and when they make investing decisions affects outcomes.

For example, they noticed that they tend to trade on a Friday and so are now scrutinising if that time of the week is when they give their best performance.

Of course, most individual investors can't stretch to hiring a behavioural finance coach. But journal-ing and reflecting on your own mistakes is free and may stop you repeating them.

Humility and learning to pivot is another good option.

Chris Davies, co-manager of the Baillie Gifford European Growth Trust, freely admitted to me last month that he had made mistakes in 2021, but he is determined to reshape his strategy so he doesn't make them again. He said: 'We weren't using some of the tools available to us that we could have been using to help us ask a simple question: What is baked into share prices today?

'It's about trying to correct an imbalance in the process. It's forced us to look at the parts of our process that needed tweaking.'

A third option is trying to learn from history.

If you're ever able, I would heartily recommend a visit to the Library of Mistakes in Edinburgh – or one of its outposts around the world.

It is a free-to-use library dedicated to the study of financial history – so that both professional and individual investors can avoid repeating past mistakes. The challenges faced by investors today may feel like uncharted territory, such as the growth of AI, or soaring government debt. But a trip to the library is a reminder that we've seen it all before – if in different guises.

A fourth option – also deployed by Mick Dillon – is forcing yourself to think with a five-year time horizon. It's easy to get caught up with the issue that is blocking your path in front of you – but what really matters is the long term.

This approach enabled Mick to buy companies such as aircraft manufacturers during the pandemic when flights were grounded – because he could imagine a longer-term future where things would look positive again when others could not see past the short term obstacles to success.

Finally, if all of these options feel like too much hard work, there are two easier ones.

The first is to find managers whom you trust to have done all this analysis themselves so you don't have to.

And the second is simply to buy everything. Don't make bets on a single outlook. Instead, bank on all options – seen and unseen.

In practical terms, this would mean investing in a well-diversified portfolio of companies in all sectors and geographies. That way, you're as best-placed as you can be for whatever is waiting down the road and you're not dependent on one outcome.

And the other advantage – it leaves you more time to do the things you actually want to do. Such as – in my case – wave-jumping in the sea off Norfolk.

• What do YOU do to protect yourself against investing blindspots? Let me know: rachel.rickard@mailonsunday.co.uk

Roll up! Firms should take our advice

Companies and regulators would save a lot of time – and households a lot of money – if they just took heed of Wealth & Personal Finance and its sister section Money Mail in Wednesday's Daily Mail.

In February last year, I said in Wealth that the telecoms operator Ofcom must crack down on mid-contract above inflation price hikes on broadband and mobile bills. It took until last week for Ofcom to do it. I know regulators like a long-winded consultation, but it would have saved households millions of pounds if it had taken action when we called for it.

In the meantime, millions of households saw their bills rise by around 17 per cent in April –increases that we could have done without as they came slap bang in the middle of the cost-of-living crisis.

Then in May this year, I wrote that Pret a Manger was putting me and other customers off its coffees and sandwiches with its dual pricing model.

Pret's subscription model meant that customers had to endure seeing two prices presented for each item: the reasonable-sounding subscriber price and the outrageous-by-comparison price that non-subscribers must stump up unless we hand over the equivalent of £360 a year to be Pret Club members.

Judging by the outpouring of feedback from readers, I was clearly not the only one who found the dual pricing model difficult to stomach. Last Thursday, Pret announced it is ditching it. Well, better late than never.

I'll be interested to see how Pret fares as it shifts the balance back again to pleasing its occasional customers like me, rather than focusing on its most loyal ones. I understand that under the outgoing model, subscribers transacted with Pret 28 times a month compared to an average of twice per month among other customers.

Meanwhile, I'll be celebrating both results – with a delicious cheese sarnie.