I recently staggered into the house with a huge pile of books (and a head full of new investing lessons) complements of a going-out-of-business sale.
My wife glanced at the first few books, arched her eyebrows and deadpanned: “More Winston Churchill books?”
“Its sort of like your shoe collection” was my riposte as I headed to my study to organize the expansion of my Churchill library.
It’s true that I am a Churchill nut. Want more proof? I have read Churchill’s six-volume, two-million-word The Second World War three times.
The best biography of Winston Churchill is actually one of the shortest: Churchill by Paul Johnson. At the end of the book, Johnson lays out lessons from Churchill’s life that can also be applied to investing.
Below is my take on them with two specific ideas thrown in for good measure. The Cabot Explorer tries to follow these lessons with the goal of adding more reward than risk to member portfolios.
Let’s run down just some of these potential investing lessons.
Winston Churchill’s Investing Lesson #1: Aim High
When you put your hard-earned money at risk, you should aim high for big returns.
Churchill always aimed high no matter what obstacles lay in his way. This always meant taking risks that lead to his greatest victories as well as his most painful defeats. In his youth seeking fame and glory, he threw himself into five conflicts around the world. His political career was a wild roller coaster ride but he always kept his eye on the top prize. We will not likely match Churchill’s (or Warren Buffett’s) achievements but by aiming high we will always achieve something worthwhile.
Winston Churchill’s Investing Lesson #2: There’s No Substitute for Hard Work
Churchill’s kingly lifestyle was bankrolled by churning out a stream of books and articles with steely discipline. He read widely and thought through his strategies much more than his critics give him credit for. His maxim was to always put “a premium on effort” and a “penalty on inertia.”
Churchill also benefitted greatly from a team that provided time-consuming research so that he could hit the ground running as he wrote wee into the morning after his champagne-soaked dinners.
You will not get far in building your portfolio without doing some independent research of your own. It’s also a smart move to capture a stream of independent ideas and strategies from services like the Oxford Club.
Winston Churchill’s Investing Lesson #3: Don’t Let Mistakes Get You Down
If success is going from one defeat to another without losing your enthusiasm, Churchill is its patron saint. In one year, 1931, he lost his seat on the Conservative front bench over his stand on India, had his entire portfolio wiped out by a market crash and was nearly killed when he looked the wrong way and was hit by a car in New York.
Churchill then had the courage to regain his footing and begin his comeback.
The market has a way of delivering punishing blows to our confidence and portfolios. We all will make mistakes. Don’t throw in the towel but come back all the wiser with a renewed sense of opportunity.
If success is going from one defeat to another without losing your enthusiasm, Churchill is its patron saint.
Winston Churchill’s Investing Lesson #4: Don’t Play the Blame Game
How many of us always find someone to blame when an investment does not pan out as expected? It is that idiot newsletter editor, stupid financial advisor, or an incompetent executive that is to blame for our unfortunate investments.
Churchill never wasted his time with the blame game but merely moved on to the next speech or fight. Take ownership for your mistakes and move on.
Winston Churchill’s Investing Lesson #5: Find Joy in Learning & Investing
Investing should not be a task to be endured but rather, like life, a journey to be enjoyed. Churchill lived a large life with many interests and hobbies. He became a pretty good bricklayer and an accomplished artist. Writing on a wide range of topics broadened both his perspective and built his impressive intellectual capital.
He was also a global traveler with a penchant for adventure and action. You should follow his example by reading about and, if possible, visiting interesting high-growth countries such as Malaysia (EWM) or Chile (ECH).
Winston Churchill’s Investing Lesson #6: Have a Global Perspective & Strategy
Churchill’s grasp of world geography and history was simply astounding. His big advantage was being at the center of the British Empire which at its height covered 40% of the globe. As a young man, he threw himself into five wars: Cuba, Sudan, Egypt, India and South Africa.
No doubt that today he would be very interested in frontier and emerging markets that offer great opportunities as they play catch-up. You also need to think globally in managing your portfolio and search worldwide for growth and value.
This is the mission of my Cabot Explorer advisory.
Winston Churchill’s Investing Lesson #7: Be Aggressive & Conservative
One of Churchill’s unusual traits was his ability to be conservative and aggressive at the same time. As head of the Royal Navy, while the storm clouds of World War I gathered, Churchill was quite careful to position and protect its 1,100 warships. But trying to end the carnage of trench warfare, Churchill attempted to knock Turkey out of the war and open a lifeline to Russia by seizing the Dardanelles, the gateway to Istanbul.
This brings me to my best advice for times of high uncertainty and volatility.
Divide your investments into two portfolios. Put the bulk of your money into a well-diversified, rock-solid “core portfolio” with the goal of preserving capital. The rest goes into an aggressive high-risk/high-reward “explore portfolio.”
For the core, a combination of conservative stocks and ETFs makes sense.
For the explore, consider high-potential emerging market and international stocks, as well as some overlooked technology stocks.
And if you need some help doing it, click here.
What life lessons have you learned that you now apply to investing?
*This post has been updated from an original version.