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Wednesday, July 13, 2016

'Winning by not losing'

A cornerstone of our core investment beliefs

On Sunday Andy Murray won the Men’s Title at Wimbledon, which triggered me to look up Dr Simon Ramo. He was a scientist, engineer and violin player, and one of the founders of TRW Engineering, which was essential to NASA and the moon project. So where does ‘winning by not losing’ come into it?

Si Ramo died on June 27th aged 103 and there was a wonderful obituary in the Wall Street Journal this weekend.

In 1970 Ramo published a book, Extraordinary Tennis for the Ordinary Player.  This was the inspiration for a wonderful book on investment policy by Charles Ellis, Winning the Loser’s Game.  This book was a very early cornerstone of our core investment beliefs.

Ramo studied tennis as a passion but also as a statistician.  Over a period of many years he observed two games.  One played by professionals and a very few gifted amateurs, the other by the rest of us.  He found that in professional tennis about 80 percent of the points are won, but in amateur tennis about 80 percent of the points are lost through errors.

Ramo summed it up this way: professionals win points, amateurs lose points.

According to Charles Ellis, investing is a loser’s game.  So the best way to play is to avoid making mistakes.  Speculation and trading is a zero sum game.  Quoting Gorden Gecko in Wall Street: “somebody wins, somebody loses.  Money itself isn’t lost or made, it’s simply transferred.”

In the latest Journal of Portfolio Management there’s a paper which suggests that despite all of the recommendations not to follow the herd, retail investors still do just that.  Time and again they lose money and institutional investors benefit.

We try to avoid this by sticking to sensible long-term strategies: winning by not losing.

Thank you Si Ramo and Chuck Ellis.

Mark Ralphs, Partner

13th July 2016


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