If asked, what would you say is the primary difference between long-term investors and short-term traders? No, not that answer. I mean, what's the real difference?
Is
the delineation about wealth? Clearly, wealthier,
higher net-worth investors can afford the "luxury" of withstanding
market volatility more easily than those with limited resources. But is it the size of one's bank account that
truly distinguishes or characterizes his/her investment profile?
Perhaps
the difference lies in age, or some other demographic. Are younger investors just more impatient,
more likely to gamble on the "big score"?
Making
that assumption would be akin to profiling irresponsibly, I believe.
How
about time? Does the length of one's
investment horizon determine....or predetermine... the asset allocation of his
portfolio, or his patience to deal with change?
You're
getting closer.
What
economic scientists have observed about the emotional
characteristics of investors during
particularly difficult times (dot.com crash; credit crisis; January, 2016,
e.g.) is that one's perspective about life, money, success, family, and ego create
stratifications within the hierarchy of investments, more so than does his age
or net worth.
Are
millionaires more tolerant of market gyrations than the "little
guy"? Surprisingly not, in many
cases.
In
fact, I've seen examples in which the wealthiest clients sometimes want out of
the market the quickest, in order to protect their hard-won largesse. Obviously, there are no rules or stereotypes
that apply to all persons, all classes of wealth. That is why I claim that the stratification of investment objectives is very often disconnected
from one's net worth, altogether.
We
do observe, however, that those who pay closer attention to broader
macroeconomic fundamentals are usually more tolerant about portfolio
fluctuation than those who approach investing from the
"bottom-up".... one stock, one sector at a time. We also observe that those who base their
investment decisions on emotion and hyperbole rather than technique or
discipline are faster to panic and pull the trigger....in or out.
Boom
or bust
One
factor which does distinguish the outcome of these strata is asset allocation/diversification. Using a multiplicity of sectors, securities,
valuations and sources preserves not only one's fortitude in the face of
volatility, but the levels of fluctuation within the body of the portfolio,
itself. That's where a good money
manager becomes so important. Assuming
that the client's risk/reward tolerances have been carefully vetted, and
upgraded from time to time, the manager's job is to reflect the realities of
what is happening in the global marketplace into the makeup of the portfolio.
We
cannot immunize a client from the inevitable, and sometimes painful, vagaries
of the financial markets. I abhor losses
as much as my clients do. But I am
consistent in the application of my disciplines on behalf of their objectives,
and have demonstrated a track record of execution that limits downside risk as
much as one is able. Our primary job is
navigation, and a sense of optimism about the ultimate outcome.
As
I have written in earlier missives, I believe a certain degree of the damage in
the markets is representative of an unwinding of the multi-tier quantitative
easing (QE) that was erected during the recovery phase of the credit
crisis. Although it is difficult to
divine exactly when we will see the unwinding stop, there are fundamental indications
that it should shortly. Although global monetary policy might be disjointed and disconnected, there
nevertheless exists high economic and
commercial correlation between the
actions of major economies and the rest of the world. Thus, this notion that "when China sneezes, the West catches cold".
Operating
under "anxiety mode" usually is a recipe for failure. In recent instances, science is being
shortchanged in the face of simply doing something
to avoid being uncomfortable. If you find that the markets are making you
react precipitously, then the result you seek most likely will come out the
opposite of what you expected.
No comments:
Post a Comment