Seven Investing Rules From Winston Churchill’s Life
by Carl Delfeld, Investment U Senior Analyst
Thursday, September 29, 2011: Issue #1611
I staggered into the house last week with a huge pile of books.
Compliments of Border’s going-out-of-business sale. My wife glanced at the first few books, arched her eyebrows and deadpanned: “More Churchill books?”
“It’s sort of like your shoe collection,” was my riposte as I headed to my study. Once there, I smiled and organized my expansive Churchill library.
I’m a Churchill nut. Need more proof? I have read Churchill’s six-volume, two-million-word epic, The Second World War, three times.
The best biography of the former British Prime Minister 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 more thrown in for good measure…
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 led 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 won’t likely match Churchill’s (or Warren Buffett’s) achievements, but by aiming high we’ll always achieve something worthwhile.
Lesson #2 – 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 benefited 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 won’t 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 The Oxford Club.
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. On one year, 1931, he lost his seat on the Conservative front bench over his stand on India, had his entire portfolio wiped out by the 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’ll all make mistakes. Don’t throw in the towel, but come back all the wiser with a renewed sense of opportunity.
Lesson #4 – Don’t Play the Blame Game
How many of us always find someone to blame when an investment doesn’t pan out as expected. It’s that idiot newsletter editor, stupid financial advisor, or an incompetent executive who’s 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.
Lesson #5 – Find Joy in Learning and Investing
Investing shouldn’t 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, Chile and Poland.
Lesson #6 – Have a Global Perspective and Seek Adventure
Churchill’s grasp of world geography and history was simply astounding. His big advantage was being at the center of the British Empire that at its height covered 40 percent of the globe. As a young man, he threw himself into five wars: in Cuba, Sudan, Egypt, India and South Africa.
No doubt that today he would be very interested in frontier markets that offer high opportunities as they play catch-up. You also need to think globally in managing your portfolio and search worldwide for growth and value.
Lesson #7 – Be Aggressive and 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 these 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.”
The strategy might not make you the Prime Minister of the United Kingdom, but it will help you capitalize on strong growth in the global markets.
Good investing,
Carl Delfeld
Article by Investment U
