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On Presidents Day, the New York Stock Exchange and Capital Group’s U.S. offices will be closed.

In observance of the Presidents Day federal holiday, the New York Stock Exchange and Capital Group’s U.S. offices will be closed on Monday, February 17.

Long-term investing

5 investing mistakes to avoid

There is an old saying in the investment business: If you haven’t experienced a bankruptcy, then you’re probably not taking enough risk.
 

Bankruptcy should never be taken lightly, of course. But investing is a business of assessing risk and seeking reward. Mistakes are inevitable.
 

“It is very hard to consistently outsmart the market,” says equity portfolio manager Greg Wendt, who has been a professional investor for 35 years. “Even the most successful portfolio managers are right 55% of the time and wrong the other 45%. At Capital, we have a tradition of sharing our experiences with colleagues: to be supportive, empathetic and to remind them that if they keep working hard, they will get it right again.”
 

For equity portfolio manager Lisa Thompson, mistakes are the building blocks of future successes.
 

“You learn more from your mistakes than your successes,” says Thompson, who has 34 years of investment industry experience. “When you buy a stock and it works out well from the start, that feels great, right? But there is a chance that might be due to being in the right place at the right time. But I find that where I've learned a lot is when an idea didn’t work out or took very long to work out.”
 

In that spirit, five veteran portfolio managers share their investing mistakes and the subsequent lessons they learned.

Hear more on this topic:

1. Beware of story stocks

Greg Wendt, principal investment officer, SMALLCAP World Fund®

Earlier in my career I invested in a cruise ship operator called American Classic Voyages based on a very powerful story. The company had roots in the Delta Queen Steamboat Company, which operated popular cruises up the Mississippi River. Billionaire financier Sam Zell, who saw an opportunity to disrupt the cruise industry, was the company chairman. American Classic Voyages planned to attain exclusive rights to cruise the Hawaiian Islands through a protectionist U.S. maritime law.
 

I looked closely at the tourism dynamics for Hawaii and the cruise industry in general and recognized there would be strong demand for these trips. The company raised all the necessary capital, hired a dream team of managers, and began building the cruise liner at a Mississippi shipyard.
 

Now at the time, a cruise ship had not been built on U.S. soil in more than 25 years, but the shipyard had extensive experience building military vessels. What could possibly go wrong?
 

Well, it turns out that recapturing industrial skills once they are lost is not so simple. The multibillion-dollar effort to build the ship failed, and for this and other reasons the company went bankrupt. It never occurred to me that you couldn’t find the talent to build a cruise ship in the U.S. The unfinished vessel ultimately was towed to Europe where it was eventually completed. Meanwhile, the investment thesis sank like a rock.
 

The lesson: Don’t assume a company can execute its business strategy without understanding how it will be done.

Hear more from Greg Wendt:

 

2. Avoid analysis paralysis

Lisa Thompson, portfolio manager, New World Fund®
 

Investing is a discipline that is part science and part art. To succeed, you need to be able to gather the data and do the math. But you also need to make judgment calls based on knowledge gained through experience.
 

I am by nature a contrarian investor. As such I tend to avoid the crowd and get interested in an investment when others are selling. The great commodities super-cycle of the early 2000s driven by a rapidly growing China had more or less come to an end by 2014. After rising sharply from $10 a ton in 2003 to around $170 in April 2009, the price of iron ore plummeted to below $70 a ton by December 2014.
 

Shares of mining stocks also fell, pressured by the price drop. Against this backdrop, I began working with our analyst who covered mining stocks and grew interested in Brazilian iron ore producer Vale. Now, experienced investors in cyclical companies like Vale know it can be very difficult to call the bottom of a cycle. So during this period I was meeting regularly with the analyst to go over the numbers. Meanwhile the stock continued to drop.