Should one still buy Amazon at current price levels? When is the best time to realise profits? Why did my asset manager not sell before the downturn of the market? Investors tend to get influenced by short-term market movements. Also, doubts emerge quickly with regard to the own asset manager when the best friend mentions, that her manager achieved a return twice as high.
Apart from the fact, that apples are often compared to oranges or that such quotes are mostly missing the point, they are symptomatic for a wrong perception of investment management. Long term investment success has nothing to do with short term speculation or self-declared investment gurus.
Empirical studies have proven over again, that performance can mainly be attributed to the weighting of single asset classes. The selection of single instruments within the asset classes, let them be stocks or bonds, only plays a minor role. Also from our experience we can confirm that a large share of long term investment success relies on the definition of the appropriate investment strategy.
Therefore it is recommended to pay attention to the definition of a suitable and personalized investment strategy and its efficient implementation. The questions each investor has to ask go beyond the ones that have to be filled out in the various questionnaires of asset managers. The discussion of definitions such as risk ability, risk tolerance, investment targets etc. should not be seen as a mandatory regulatory requirement but as a base for investment success. As discussed in the beginning, short term motivated deviations are often a cause for not achieving the originally defined return expectations. Buy low, sell high sounds tempting from a theoretical point of view. However in praxis this will hardly work. Only if the defined investment strategy is consequently maintained, long term expected market returns can be reached.
Staying invested is one of the important success factors. If an investor remained invested in the MSCI all world equity index throughout the last 14 years, his returns would be more than +180 % today. If this investor missed the best 20 days, he would be in the red1. However, in order to maintain an investment strategy in the long term, it has to be adapted to the client’s risk profile.
The structure of total assets and the allocation to single asset classes such as bankable assets, properties, equity holdings, gold, etc. has to be considered at the definition of the investment strategy. The asset manager often only knows one part of the total wealth. As an investment controller we support our clients to fine tune the investment strategy according to their individual needs and their total assets structure.
1 Source: JP Morgan «The weekly Brief», 08/31/2015