finweek

Whom should you trust in the investment world?

Simon Brown, founder and director of JustOneLap.com.
Simon Brown, founder and director of JustOneLap.com.

“Don’t trust Simon Brown” – that was the subject line of a recent email my colleague at Just One Lap received. When she forwarded it to me, my initial thought was that the sender was someone who’d lost money after reacting to something I’d said or written. 

But on reading the email, it became clear that the sender was actually talking about the industry and trust in general terms.   

They made the point that investors have to contend with information overload, with thousands of hours and pages of new content every week. Often, many of the views are contradictory and as a result we should be careful about whom we trust.  

That’s a great point – I suspect that we trust people too easily, especially if we are not experts in a particular field. For example, when you buy a car, you have to trust that it won’t burst into flames or have a markedly reduced resale value if it is among those who did not catch fire. We have to trust that the other drivers on the road won’t attempt to kill us and we have to trust our bosses to pay us on time every month, and so the list grows.  

Managing trust

But we also have to manage this trust. For example, we have to trust the management of the companies we invest in and be prepared to stop doing so if necessary. Here I present MTN. 

I was a long-term shareholder of this stock when the news about the Nigerian fine first broke on a Sunday evening in October 2015. 

I was on holiday and watched the share price crash at open on Monday while waiting for a Sens announcement, which eventually arrived mid-afternoon. My view was that my trust had been broken and I immediately sold my shares. Ever since I’ve been a harsh critic of the telecoms operator as it’s working to rebuild my trust. 

Another problem is that trust can be built on false pretences – not so much with fake degrees and the like, rather with razzle-dazzle and unrealistic promises. I see it all the time – often the only credibility somebody has is a flashy car and a promise to make anyone who will listen wealthy. 

Here we are being blinded by a desire to be rich and abandon all reason. We are putting our trust in this person because we truly desire the promised outcome without taking a critical look at them.   

Identifying the trustworthy

Back to the email writer’s point: in the financial industry it is perhaps even more difficult to know who to trust simply because of the number of people offering advice and recommendations. So, where do we start? 

Well, a great place to start is by being sceptical. Interrogate what people are saying and try to determine whether it makes sense. More importantly, work out if they are consistent and accept their mistakes. 

Find people who you largely agree with and have learnt to trust over time. Even then, always ensure that you’re always examining their views and ideas.  

I have a short list of people in this industry I trust. They’ve proved it to me over the years even while being wrong at times. 

We have similar investment beliefs. When they say something, I pay attention, but I still don’t blindly follow them. I use their view as a starting point to do my own digging to check if I agree. At the same time, I accept that at times I should defer to their knowledge when it is demonstrably better than mine.   

Keep track of it

So rather than just trusting everybody, start keeping records (and they can just be mental records) of who seems more trustworthy. Do some digging and rather reserve judgment instead of just trusting everyone blindly.  

Finally, should you trust me? Well, my cat does, but that’s because I feed him. You need to work out a process to decide who you do trust and you need to decide if I’m on that list. 

This article originally appeared in the 9 February edition of finweek. Buy and download the magazine here.

 

 

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