Julian Chillingworth has spent the past 30 years scouring the globe for the most attractive investment opportunities, and still insists that finding world-class companies which are capable of delivering consistently strong returns is not for the faint-hearted.
The chief investment officer of Rathbones maintains that even discovering hidden gems with excellent business models may still not be enough to guarantee you will make money should unforeseen problems occur in the broader economic environment.
"It's a challenging job and even people that enter the industry don't appreciate that," he says. "They may have a few lucky breaks early in their careers but you learn from your mistakes, and need to work through a recession before you fully understand how the stock market works."
When you consider many professional fund managers end up dramatically underperforming the stock market, despite having the resources of multi-billion-pound investment companies behind them, the scale of the task facing private investors seems onerous.
But it is still possible to make strong returns, says David Kuo, director at financial website Motley Fool, who points out that household names have delivered big returns. Domino's Pizza, for example, has gained about 460 per cent in the past seven years.
"The three golden rules are research, research and research," he says. "You need to research the market, research the company and research the accounts carefully. Look at the market in which the company is operating; research the track record of the managers; and examine whether the company has a proven record of delivering returns to shareholders."
Mr Chillingworth agrees: "It's important not to become too buffetted by short-term concerns, and instead to focus on the longer-term prospects. People also need to concentrate on a small number of companies and industries to really understand what they are investing in."
We asked leading fund managers and stock-pickers to highlight companies in a variety of sectors and geographical locations that they believe are well-positioned to deliver handsomely for investors over the coming years. This is what they recommend:
Philip Matthews, Jupiter UK Growth & Income Fund
Reed Elsevier: The foremost publisher of science and health information serves millions of scientists, students and health and information professionals worldwide. It also has globally leading positions in legal publishing, insurance information services and events. In an uncertain economic environment, investors are chasing secure income and the potential for dividend yield, and Reed Elsevier offers both.
It has a strong franchise in academic publishing and has successfully migrated from print publishing to an online-delivered product. It is a stable and solid business, well-placed to perform over the next few years given its dominant position in the small number of niches it operates in.
Beazley: This Lloyds insurance company has been operating for more than 25 years. It has a strong track record, producing one of the best and most stable returns on equity in the Lloyds insurance market. The industry looks to be ahead of the game in terms of capital requirements for Solvency II, the fundamental review of the capital adequacy regime for the European insurance industry. Beazley has a strong balance sheet, is well-reserved and offers investors some of the strongest earnings growth in the sector at a relatively low valuation.
Angus Parker, HSBC Global Asset Management
Ryanair: The low-cost airline should see its returns improve significantly over the coming years. Following a period of capital expenditure, when it built its fleet to the current 294 Boeing 737s, the group will generate significant cash flows that it can return to shareholders or reinvest in the business. With an average fleet age of four years, the newest in Europe, it is not under pressure to renew its aircraft. Its established and dominant low-cost model gives it a very strong competitive position with airlines exiting the industry and airports keen to attract Ryanair's traffic.
SEB: The French manufacturer of small domestic appliances, under brand names such as Tefal, Moulinex and Rowenta, continues to take advantage of the rise of the global middle class. Its products capitalise on key trends including urbanisation, convenience and a healthy lifestyle.
As well as its well-established European portfolio, it owns the leading brands in China and Latin America. Market leadership and profitability are improving through constant innovation, brand building and efficient manufacturing. A solid balance sheet enables it to develop or acquire brands and technology that can be rolled out globally.
Charles Luke, Murray Income Trust
GlaxoSmithKline: It is one of the world's leading pharmaceutical companies. In the past decade, the sector has been de-rated on concerns about the paucity of new drug approvals, poor research and development efficiency, government healthcare budget pressures and the threat of competition from generic substitutes.
However, these issues have been more than factored into Glaxo's valuation and, with a dividend yield now around five per cent, the market is overlooking the company's significant strengths, such as an attractive consumer healthcare business and a growing vaccine business that is less susceptible to generic competition. There is also scope for further cost savings and efficiencies.
Unilever: The world-class consumer goods company benefits from a strong portfolio of well-known brands, such as Ben & Jerry's, Dove, Lynx and Hellmann's. It has an attractive geographic spread with significant exposure to faster-growing developing and emerging markets, and is concentrating on innovation to drive volume growth. Unilever has the opportunity to improve its margins over time, benefitting from better efficiency and operational gearing. It has a robust balance sheet and attractive cash flow, and should deliver appealing earnings and dividend growth.
Alex Wright, Fidelity UK Smaller Companies Fund
Creston: This is a very small company with a market capitalisation of around £40m and net cash on the balance sheet. Its shares are extraordinarily cheap, trading on only 5.5 times next year's earnings. It enjoys strong positions in fast-growing niches of digital and healthcare marketing. The stock is off the radar of most brokers and analysts, but with improving prospects, upside potential is significant. Its size and competitive niche positions make it a possible takeover target for a larger media group. It also pays a dividend of more than 5 per cent.
Fiberweb: This stock is also very cheap, trading on a deep discount to book value. It was sold off heavily during the downturn in the US housing market because its main revenue driver is selling construction materials to housebuilders in the US. However, it is now benefiting from the nascent recovery in this market. It also made a sensible disposal of an underperforming hygiene business and has cash on the balance sheet and a dividend of over 5 per cent to provide some downside protection.
Graham Spooner, The Share Centre
Monitise: Monitise allows users to make balance transfers, payments, report lost or stolen cards and trade shares on the move via smartphones, tablets and some traditional mobile handsets. A fourth-quarter trading update demonstrated that the company continues to progress well, with revenues expected in this financial year to more than double on strong demand. Its order book at the end of June stood at £270m.
Monitise is a high-risk investment as it is still in the early stages and does not generate profits yet. We recommend the stock because of the potential the technology offers, the rate at which the company is growing, and the high calibre of the partners.
Compass: We have high hopes that Compass will continue to make steady progress. Organic revenue growth is will top its agenda as it looks to improve its balance sheet. Compass is also a fairly defensive business as it has almost 50 per cent of its operations in the healthcare, education and defence sectors and is therefore likely to be less susceptible to economic downturns. The business looks financially sound, even after 27 acquisitions in the last financial year. Cash flow remains strong, the interim dividend rose 10.8 per cent and organic revenue growth was 5 per cent.Reuse content