Chris Belchamber has been a prominent investment professional since 1984, weathering more than three decades of long-term economic trends with successful investment strategies. Chris spent much of his career at JP Morgan, running their UK Sterling Bond Sales and Trading, before shifting to proprietary trading and on to the position of managing director.
Throughout his career, Chris saw that his beliefs about investing and his approach to priorities and metrics differed from other investors in fundamental ways and his own success reflected how important it was to approach investing with the right mindset.
Chris shares the mindset, math, and strategies behind successful investing in his new book, Invest Like The Best: The Low-Risk Road to High Returns. In our conversation, Chris shared his thinking on how we can all invest smarter for better returns.
Emily Gindlesparger: Today, I’m in conversation with Chris Belchamber about his new book, Invest Like The Best. Chris, welcome to Author Hour, it’s great to have you.
Chris Belchamber: Thank you, great to be here, and thank you for setting this up.
Emily Gindlesparger: Absolutely. Your book is such a wonderful resource guide for investors and let’s start by giving listeners an idea of how you got to this method of investing and what your background is?
Chris Belchamber: I suppose I’ve been sort of a research trader and investor for almost 40 years and so there’s a lot of experience and conversations that have happened over that time. I’m always amazed at how people aren’t clear about investing and trading but everybody wants to dive in and get in the mix, and I think there are so many things that people could do to have better results.
So, this is really trying to distill a lot of things, many of which you can’t really go over in a short conversation, so you really have to write them down and have a logical sequence. So, this was a chance to really do that and hopefully, it will be helpful to people when they think about investing.
Emily Gindlesparger: What kinds of investors is your book ideal for?
Chris Belchamber: Yeah, I really hope that it’s universal. I think that what’s surprising to me is, I go into great detail in chapter four about the LTCM experience, which is how confused so many people are about the principles and process of investing and people tend to forget about the really important things for behavioral reasons.
I think it’s worth being able to just walk through that to help people get to a better way to see how they can do better.
Emily Gindlesparger: Yeah, and in the first part of the book, you tackle the mindset people need to invest effectively. What are some of the ways you see investors needing to change their thinking? What misconceptions do they have?
Chris Belchamber: The biggest misconception is really about their own decision-making. How do you actually make good decisions about investing? There’s a lot to that and I think people tend to rush in and learn from experience or surprisingly not learn from the experience and tend to repeat things.
I think it’s really worth doing some groundwork before you rush in and make decisions, to be aware of all the things that you need to know before you become repeatably successful as an investor. I hope that people will be able to develop their own checklist and awareness so that they can start getting themselves towards a process where they can do much better.
Emily Gindlesparger: You write that part of this is changing people’s investing habits as well as their mindset. What kinds of habits do you see people have around their investments that do more harm than good?
Chris Belchamber: Well, I think a lot of people are very much focused on returns and in particular, short-term returns. You can understand that behaviorally, it makes sense. But the problem with just looking at returns is it has many different components and, those components basically being process, the amount of risk you’re taking, and the luck that exists in the outcome. Because you don’t know the future, you don’t know whether any one trade is going to be successful.
Being able to start breaking it down between those components, you’re going to see whether you’re going to be repeatably successful, or whether you’re actually on a journey where you’re really taking more risk than you need to, and you’re more exposed to luck in your outcome.
I really think that just looking at return leads to confusion and in the first chapter, you can see that. You can see that people’s allocation goes up with the market–that means that at the highs, people are most invested, and at the lows, people are least invested.
On average, people end up with a sub-optimal return and that’s because they’re just thinking about returns. Now, if they can break that down, they can do a lot better. It’s not just the average investors, it’s also professional investors. You see the hedge funds, although they may have a lot more tools and be very dedicated investors because they get paid on returns. It’s very difficult, behaviorally, for them not to be biased to looking just at returns.
I think it’s almost like there’s a return obsession that can easily set in and it leads to not seeing a lot of things you really need to be able to see if you’re going to be repeatably successful, like the best investors.
High Expected Return with Good Risk Management
Emily Gindlesparger: What are some of those other factors that make an investment a good choice?
Chris Belchamber: I really get into that in chapter five and that is making sure that you’re investing in a high expected return with good risk management. Really, that’s the key to it all and that you’re doing that with a good decision-making process.
That sounds quite simple, but you know, I think there are a number of steps you need to take to make sure that you’re in a situation where you’re actually doing that. I think that there are a lot of things that lead you astray from actually doing that.
You need to be aware of the traps and you need to be sure that your decision process is consistently good.
Emily Gindlesparger: You write that you have a different approach from most financial advisors when it comes to setting priorities and setting metrics, tell us about that?
Chris Belchamber: Yes, that’s all about the difference between how best investors look at investing rather than financial advisors, and that’s a generalized statement, and all financials are somewhat different.
But it’s very clear that the best investors, in every statement throughout the book, they’re stressing low risk, high return. Whereas if you look at financial advisors in general, they are saying, “Well, we want to maximize your returns, and the way we’re going to do that is by maximizing risk as much as you can take from your financial circumstances.”
Those are two very different perspectives on how to allocate what the relationship is between return and risk. You’re going to get two very different outcomes depending on which path you take and I don’t think enough people realize that there is a big difference between what financials typically say and what the best investors have practiced for multiple decades.
Emily Gindlesparger: Do you have any specific examples that paint that picture of someone perhaps who began investments with one mindset and then changed their mindset and their investments and saw different outcomes?
Chris Belchamber: I think people eventually will, after enough experiences, will want to move towards that but I think that they have to go through many bad experiences to get there. I hope that one of the things that the book does is it shows that you can find out very quickly which path you’re on.
Are you on the path where you’re doing pretty well for a while but then, things go badly wrong? Or, are you on a path where systematically you’re going to continue to do well year in, year out, decade after decade?
The book highlights two different sets of investors, particularly John Meriwether of Long-Term Capital Management who was spectacular for three years and then went completely bankrupt, and Jim Simons and Stan Druckenmiller who, for 30 years, almost never had a losing year, but still were compounding at 30% or more.
Those are two very different sets of behavior. But you can see by looking at those two extremes, how important it is to be on the right track and how different the behaviors are between those two. With the metrics I introduced in part two, you can very quickly find out, which path you’re on, rather than having to wait for years or even decades to find out which path you’re on, and then it’s too late.
Emily Gindlesparger: This is a vulnerable question but do you have any tragedies or successes of your own that helped you learn these lessons?
Chris Belchamber: I’ve always thought this way, I guess. I’ve always been surprised at how other people look at investing, and that they want to take a lot of risks. I think I’ve always been aware of the downside.
Fortunately, I’ve never blown up, so I think because of that, even when I was a branch trader at JP Morgan, I never had to have my manager tell me, “You need to cut positions,” or whatever. In terms of my own experience, I haven’t had that, but I’ve seen it through others.
I think you can learn a lot through other people’s experiences. I was on a proprietary trading desk when the manager of that proprietary trading desk blew up. We all had to close down because the manager’s positions had raised concern at senior management. I have seen it happen and I could see why it was at all possible, at least that it could happen. I was very dismayed at the style that some other people had taken in terms of their trading. I guess that’s the experience that I’ve had, which has been very confirming.
Emily Gindlesparger: What do you think is the hardest part of someone’s mindset to shift in this direction of making smarter decisions and understanding this relationship between risk and reward better?
Chris Belchamber: It basically starts with taking responsibility. I think very often when bad things happen, it’s very easy to blame someone else or something else that caused the losses and, that can result from confusion about the risk that you took on when you took a position.
That’s a key part of it. I think a lot of people tend to imagine they know the future and I think when you think you know something, you react more slowly, you don’t think about what you might do in different outcomes. So, they’re not flexible.
I think there’s a lot of things that you have to make sure you’re fully aware of when you’re investing, and I think that people tend to jump to a simplistic idea and think that it’s done. It’s never done. You never know what’s going to happen tomorrow, so you always have to be prepared.
I think it’s understanding the environment and being sure that you’re equipped and responsible and know how you’re going to react when something else happens, or if you need to adjust.
Emily Gindlesparger: Chapter eight tackles investment myths and heresies as you call them. When you were first starting out, what myths in the financial industry surprised you?
Chris Belchamber: Passive investing has always surprised me and it’s been a massively growing movement as you would expect according to behavior. You know, like in chapter one, we showed that ever since World War Two when people like to see positive returns that build, people think they can invest passively more and more and more. Essentially what that means is that price doesn’t matter and long-term trends are reliable forever and those are astonishing assumptions.
Which, nevertheless, do work for a number of years but then people get anchored into those viewpoints and stop thinking. I think that’s one of the things I look at in chapter eight, and I actually use a quote from Benjamin Graham in that chapter, where he was talking in the 1930s looking back at the crash of 1929 and he was saying something very similar. It was bound to fail. This idea that it didn’t matter what price you pay, you were just doing a very simple thing that would work forever.
I find that very surprising, but it’s a behavioral thing and if you look at history, it happens again and again and again. I think people need to be aware that things do change, and however well you’re doing, risk hasn’t gone away. There are ways to participate from the outside, which means that you can be involved but you can be involved safely in a way that you are going to keep those gains when things do change. That’s what I hope people may be able to find a way to learn how to do.
Emily Gindlesparger: I love this other quote from Benjamin Graham that you use on the back cover of your book, which I think sums up your whole thesis so well. “The investor’s chief problem and his worst enemy is likely to be himself. In the end, how your investments behave is much less important than how you behave.”
Chris Belchamber: Absolutely. You know, behavior is very important. I think a lot of people come into this thinking it’s a science and it’s math and if you’ve got good math then you’ll be very rich. But you know, I think that what the argument in chapter two about economics shows, I think quite convincingly, that after 300 years of economics, we should have learned one thing and that is that we are irrational. We’re not reliably making rational decisions and we are highly behavioral and so it’s worth embracing that.
You can actually be mathematical about behavior. You can actually use that, but you can only use it if you embrace it. I think that people need to get away from the idea that this is just a science and accept that it’s complex, it’s behavioral, and then use it to their advantage because it will provide an edge to you that other people aren’t using.
Yes, behavior is something you need to understand, be aware of, embrace and then use to your advantage.
The Best Investors
Emily Gindlesparger: Well Chris, thank you so much for writing this book. It does such a great job of untangling all of the beliefs and habits that go into our behavior around investing and I know it is going to help so many people. If you wanted people to take away one to two things, maybe as a starting point for how they can enact change in their investments, what would they be?
Chris Belchamber: First of all, there’s a reason why the best investors are the best investors, the book studies what they do and it distills those four criteria, which can get you on track. The best investors really do use those four criteria and you can get that performance grid and you can see in a few seconds how well you’re doing and why you’re doing well or badly.
Whether you’re investing intelligently and safely or you’re gambling and you’re really in things that you should be avoiding, that performance grid is really going to tell you in ten seconds how you’re doing. You need to make sure that it’s compounded and the longer history you have that, the more information it will provide you about that. That is one very easy thing where you can find out whether you’re on track or not.
The other thing is that yes, you have to do your own due diligence because I think as chapter four shows, the great majority of even so-called experts don’t necessarily behave like the best investors. You need to have your own tools so that you can know that you’re aligning yourself with a Stan Druckenmiller rather than a John Meriwether. I hope that by using those metrics and understanding how well you can do by using low-risk methodologies, that people will be able to empower themselves with their investing.
Emily Gindlesparger: Beautiful. Well, Chris, it’s been such a pleasure chatting with you about your work and besides checking out your book, which again is called, Invest Like the Best, where can people find you?
Chris Belchamber: Well, I have a website, chrisbelchamber.com, and all the information is on there. I have LinkedIn pages where I post, so you know, there’s – I’m not difficult to find and I very much believe that there’s a huge education part to investing and I very, very much want to be engaged in that. Those are the best sources I think, chrisbelchamber.com and my LinkedIn pages.
Emily Gindlesparger: Fantastic and thank you for being a part of people’s financial education. We appreciate it.
Chris Belchamber: Thank you so much.