Stock conviction and having the humility and discipline to learn from poor investment decisions is essential for long-term returns. But how does this work in practice?
With a focus on long-term growth and cash generative companies, Chris Murphy does not believe in trading stocks on a short-term basis as a result of market noise or following ‘herd-like' behaviour. Within the Aviva Investors UK Listed Equity Income Fund this long-term conviction means stock turnover in the portfolio is low, and on average a company is held for five years - more than triple the fund market norm of around 18 months.
"Many people try to second guess the market or company results and end up trading in and out of stocks as a result. I do not think I can do that because few, if any, managers are ever able to accurately predict just how well a stock is likely to perform over the short term," he explains.
Yet Murphy adds that as fund managers it is important to learn from negative stock decisions and experiences too. For example, when the team can see a stock story is beginning to deteriorate, they move quickly to limit performance cost and dampen (in some cases negate) negative portfolio returns. This was the case with WPP.