Smarts and experience will help a manager suspect that a devastating outlier is looming, but they need a gutsy resilience to fully exploit these views. “They have to be pretty emotionally resilient, because there will be times when they’re underperforming and under pressure. They have to be very self-confident, and have a strong emotional defence, otherwise they’ll end up a wreck in this business. I’ve seen this happen,” Macoun says. This confidence is essential for a manager to bet against the market when they believe it has mis-priced an asset, but it must be tempered by discipline.

Greg Cooper, head of Schroders in Australia, says even the best managers will be right 55 per cent of the time only. “You want somebody with the self-confidence to cut through all the data and make a call, but without the hubris that would prevent them accepting that something isn’t working, admitting defeat and trying again,” he says. Good investors learn everything they can after being humbled by the market. For this reason, beginning a career in funds management during a bear market can be advantageous. Investors learn to derive lessons from their own shortcomings, and develop the thick skin needed to weather the abuses of the market. “One of the greatest human traits is resilience, and resilience is truly built in difficult environments,” Sevior says.

Rough markets might serve up the most volatile and bleak investment conditions, but they don’t unleash the full gamut of difficulties an investor will face. “Each type of market throws its own set of challenges at you. And cycles may look the same, but they’re different in nature.” In bear markets, investors learn about the power of fear and the paralysis it causes. In bull markets, they learn about the thrills of greed and the misleading euphoria of asset bubbles. “The market teaches you all sorts of lessons and you have to learn from them, pick yourself up and keep looking for the next opportunity. “Your awareness has to be sharp – not just to what you can see, but what you can’t that can blindside you.”

Experience is often the best teacher, and it matters in this industry because most managers are poor students of history, Dougherty says. “You have to go back 18 years to find a recession in Australia. In capital markets, experience is found in the peaks and troughs, and how they change investor behaviour, asset pricing and the opportunity set.” Learning about what has passed is important – “not because you’re going to extrapolate, but to get an idea of what might happen. People are very poor at understanding the possibility that things can be different. They think that what is happening now is what will largely happen.”

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