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3 Essential Investment Lessons

ASK THE EXPERT: We round up the three main themes from the Morningstar Investment Conference and explain how and why you must apply them to your portfolio now

Emma Wall 23 May, 2014 | 9:35AM

This article is part of the Morningstar's Guide to What the Experts Say. Click here for our edit on what the professional investors think about economics, equities, bonds, financial advice and portfolio construction.

Emma Wall: Hello and welcome to the Morningstar series "Ask the Expert." I am Emma Wall and here with me today is Morningstar Analyst, Jackie Beard to discuss just what went on at the Morningstar Investment Conference.

Hello, Jackie.

Jackie Beard: Hi, Emma.

Wall: So 400 advisors, 20 odd external speakers. We'd like to have a roundup of some form. What would you say the three key takeaway messages were from the recent conference. We start with the first.

Beard: It’s a good question Emma. I think the first is probably liquidity for me. It came up in a number of our speakers' presentations in different ways. So we had Paul Read at the very beginning from Invesco, who runs their bond funds, talking about the fact that we'll worry about liquidity. But actually at the times when we really want it it's not going to be there.

So it's really important to understand what liquidity means to every investor. And again that was echoed in a slightly different way by Sam Vecht from BlackRock. Talking about liquidity in emerging markets and actually really over there it is volume more than liquidity. We are very good at using this term emerging markets, when looking at these funds. It's a whole group of countries there, you can't look at them in that sort of bucket format.

Wall: Absolutely I think he used the phrase emerging market equities are not a homogenous asset class.

Beard: Absolutely.

Wall: Underlying fundamentals could be completely different from China, to Thailand, to Taiwan, to Brazil.

Beard: That’s right. And Colm McDonagh from Insight echoed that as well when he was talking about emerging market debt. So it’s really important to take that step back and look at every single investment case to what it really is and not worry too much about where it fits.

Wall: And what's the second takeaway.

Beard: The second one for me is longevity, very much part of James Anderson session from Baillie Gifford. They are very much long term investors, but long term to them is not the sort of typical five years that we hear. It's always lifetime, it's about working with companies remembering what it is that company is doing, trying to get a good return for shareholders, it is not about short term gains. His message was really nice stop focusing on short term, don’t try and measure over little periods, don’t forecast, actually buy good companies and work with them.

Wall: It's all about aligning interests for him, he mentioned also the industry needed to lose their obsession with the benchmark and just focus on remembering what companies are doing, companies that are providing a service, providing a product to the customer and if you forget that. I think he went as far to say that shareholders were somewhat to blame for the financial crisis because, if we'd been on those companies more, aligning our interests, perhaps those things wouldn’t have happened.

Beard: Exactly and then we have Nick Edgerton from First State saying a very similar thing in a different way, because sustainability is such a big part of that process now and they engage with the companies, they can spend years knowing the companies before they invest. But it's really about getting corporates to behave in a responsible way. Because it's not just about making shareholders money. It is actually making sure they are doing the right thing.

Wall: And those two things are not mutually exclusive are they, those two things can go hand in hand; long term returns come better from a sustainable socially responsible company.

Beard: Exactly right.

Wall: And what's the third one then.

Beard: I think the third for me is slightly different angle is learning, and we should never stop learning and being open to new ideas. So we had a couple of sessions on behavioral finance and both are very different in nature, but a good way of reminding us all that we have of behavioral biases that we should maybe take a step back from that. And that we should always be open to looking at things maybe in a slightly different way understanding things from a slightly different angle and never stop learning.

Wall: I think there was a thing there about herd mentality wasn’t there. Don’t just sort of go with the crowd. If you feel something about a valuation or a company you should stick with your guns.

Beard: Absolutely yes.

Wall:  Jackie, thank you very much.

Beard: Thanks Emma.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Emma Wall

Emma Wall  is Web Editor for Morningstar.co.uk.