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Baroness Helena Morrissey DBE is a City ‘superwoman’ who, among other senior roles, ran Newton Investment Management for 15 years while supporting a family of 11. She also founded the 30 Percent Club, which seeks to bring more women on to company boards
I managed money professionally for 15 years, and over that time I learned that being a good investor wasn’t correlated with how much research I did (assuming I’d covered the basics), or even how well I understood my own approach to risk and return – although that was important.
No; the biggest impact on my funds’ performance came from making accurate judgements about other investors’ psychology.
My first boss gave me an early valuable lesson in this. I started my career in October 1987, and on the exact day that Wall Street crashed – “Black Monday” – I went to a pre-arranged interview for an opportunity to spend two years in New York.
The scene that greeted me was not at all what I had expected. People were literally running around the office, shouting.
My prospective boss Peter explained what was happening, gesturing to screens covered in red, signalling falling prices. He was calm, speaking as if he was observing the scene from afar.
Later, I learned he bought US “long bonds” that day; their price had collapsed, and briefly, they yielded over 10pc.
But over the coming weeks, those bonds rallied significantly – the yield fell 1.5 percentage points over the following seven days alone, making this the trade of a lifetime.
Peter kept his head while all around were losing theirs. It was a powerful illustration of fighting fear.
I often failed to heed that lesson. But over time, I learned to hold my nerve – and, just as importantly, resist any hubris.
My own career-defining trade was buying the longest-dated gilts in the run-up to the 1997 general election, when markets were dreading a “tax and spend” Labour government.
Those gilts were extra-sensitive to news – good or bad. Everyone said I was mad, given the political risks. I became anxious about going into work, as the position went against me for several weeks.
But I clung on, convinced that market sentiment was just too pessimistic. Then, when Labour stormed to power, Chancellor Gordon Brown announced that the Bank of England would become operationally independent, catalysing a huge rally in the gilts market.
Over the intervening years, we’ve seen plenty of examples of extremes in market sentiment. The global financial crisis of 2008 was caused by greed – a misplaced conviction among bankers that “the music would keep on playing”, to paraphrase the infamous line from Chuck Prince, Citibank’s then chief executive.
As the late Queen Elizabeth asked about the crisis: “Why did no one see it coming?”. How could supposedly intelligent, highly educated financiers completely lose touch with reality?
The truth is our approach to finance – whether personal or professional – isn’t purely rational. If it was, there would be no market crashes, policymakers would get things right more often and we’d all be very sensible with our personal finances.
We’d be good at saving, budgeting and planning, and never buy a lottery ticket or make impulse purchases. But our emotions, aspirations, childhood experiences and personalities all come into play in our dealings with money.
Greed and fear are never far away, tending to escalate at exactly the wrong moments – so we “buy high” and “sell low”, the exact opposite of what we should be doing.
I recently read The Psychology of Money by Morgan Housel, a brilliant and easily digestible book. I highly recommend it – especially if you are intending to make a New Year’s financial resolution.
If you’re going to make a change that sticks, you’ll first need to understand your own money psychology.
Housel contrasts the life stories of two men. The first, Ronald Read, a janitor who died at 92, leaving $8m (£6.3m) in his will, with three-quarters going to his local hospital and library.
There was no lottery win involved; Ronald Read lived frugally, saving what he could from his low income, and investing in blue chip stocks and letting the returns compound.
The second man, Richard Fuscone, was a Harvard-educated successful banker who retired in his 40s. Fuscone borrowed heavily to expand a huge house in upscale Greenwich, Connecticut, before the 2008 financial crisis turned his fortune to dust, and one by one his three homes were sold for a fraction of their values.
One man was patient, the other greedy. As the author points out, no industry other than finance would see someone with no training or experience massively outperform an “expert”.
Doing well with money isn’t so much about what we know, but how we behave and our personal priorities and values. The key is to understand these and to work with that understanding.
My other favourite story from the book recounts a conversation between writers Kurt Vonnegut and Joseph Heller.
They were both at a party thrown by a billionaire hedge fund manager and Vonnegut pointed out that their host had made more money in a single day than Heller had ever earned from his wildly popular novel, Catch-22. Heller responds, “Yes, but I have something he will never have…enough.”
Take a look at the video of filmmakers “Colin and Samir” interviewing 22-year-old YouTuber phenomenon Emma Chamberlain. The daughter of an artist, she describes having little money as a child and feeling “so, so jealous” of her wealthy friends.
But “very soon” after receiving her first big paycheck from advertisers, she realised she had enough, financially. She points out that she has a house, a car, choice of clothes and freedom to travel – what more could she need?
Emma now has no idea how much money she has (although there are lots of checks and balances to ensure it’s safe).
She says she doesn’t want money to dictate her life or ideas.
Towards the end of The Psychology of Money, Housel pulls it all together with a set of recommendations – good common-sense points that too often get forgotten about as we busy about our lives.
Some are quite broad brush – “less ego, more wealth” – so I’ve paraphrased a few and added some of my own.
It’s still a starter for 10, rather than a definitive checklist. What’s most important is to think about your own money psychology and to consciously work with both your strengths and weaknesses.
‘Money psychology’ is the key to unlocking financial opportunities
Emotions, aspirations and nerves come into play in dealings with cash and investments