Mistakes made, lessons learned

Andy Seaman, Stratton Street Capital’s London-based partner and chief investment officer

Seaman’s big investment mistake came way back in 1993, but it has relevance for the investment environment today. Back then, the market had strong expectations that the US Federal Reserve was going to raise interest rates – tighten monetary policy.

However, 1993 was the time of a major bull market in bonds and interest rates had hit a record low of 3%.

“We were still running relatively long positions and we thought we could get out before the Fed tightens and it wouldn’t be much risk to our portfolio. That turned out to be completely wrong.”

Then in February 1994, the Fed surprised the market by raising rates 25 basis points. Bonds sold off and yields rose. The schedule accelerated with rate hikes in March, April, May and August. By November, interest rates had nearly doubled to 5.5% from 3% in January, resulting in a disastrous bear market for bonds.

“We got caught out by that,” Seaman said.

It was a time when he took too much risk even though he knew that the Fed was going to raise rates.

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