Revealed - the secret to long-term investment success
By Dave Chessell - September 29, 2019
What’s the secret to successful long-term investing? I wish I could reveal some jaw-dropping magical answer that would give me ‘guru’ status but the answer is far more straightforward.
The secret, as revealed in a new video by our portfolio manager, Nic Spicer (he does have guru status in our office) is to take a forensic approach to staying consistent.
When it comes to racking up the step count on the pedometer that’s embedded in my smart phone, it’s clear that good performance (regularly doing 10,000 steps a day if you believe the experts) accumulates and, when things are going really well and you check your annual average, the result is very pleasing. What really mucks up the fitness stats is when you go on a 10-mile hike but forget to take your phone, leaving the end result looking like you’ve seriously underperformed.
So, what’s that got to do with investing? Most people recognise that long-term investment success is made up from lots of short-term performance. Where some investment managers go wrong is that they focus only on the moment (tactics), ignoring what they want to achieve over future periods (strategy). They focus on what they see as immediate trends, but don’t keep focused on the risks they are taking, which can result in some spectacular falls that can have a serious impact on the ultimate value of a portfolio.
What Nic and his team do is constantly monitor the PortfolioMetrix portfolios to make sure they are consistent with their mandates and very well diversified, to reduce the impact of unforeseen falls. After this they also make sure they are well positioned, in the sense of being more exposed to areas of high opportunity, and away from those that are riskier.
Consistency is key
As Nic highlights in his short video, taking this approach means it’s not necessary to have outstanding years every year – something almost impossible to achieve with today’s volatile markets. Avoiding poor performance over the short-term is important, but after that consistently achieving average to good returns within years has the effect of adding up to outstanding risk-adjusted performance over the long-term.
This scatter chart from Nic’s video sums up how the PortfolioMetrix approach works in practice.
So, there you have it, the secret is out and consistency is the answer. It may not be what you’d expected to hear but, as the old proverb says, ‘slow and steady wins the race’.