Skip to content

Timing, Technology, & Long-Term Values

It is always tempting to question one’s approach to investing if you are suffering from a period of disappointing performance, so having had five consecutive declines in unit value since May 2021, it is an appropriate time for the Committee to reflect upon the way it invests your money.

The advances in technology over the past few years have transformed how the fund management industry operates, with trading platforms and internet dealing opening up many more opportunities than were available before, and attracting many more, usually younger and less risk-averse, players into the space.

Today, investing is accessible to almost everyone. The switch to digital trading systems means millions of trades can be processed every day and the outcome is usually faster, simpler, and cheaper than it was. But that does not mean it is necessarily better.

Nowadays, investors are trading more frequently and holding shares for shorter time periods. Lower fees and fingertip tools have resulted in many investors taking less time over their decision making. This can lead to knee-jerk reactions, especially if market sentiment suddenly changes and emotions come into play.

Dipping into and out of stocks, trying to time the market and take advantage of anomalies, has always enticed some players out there, but the emergence of day trading has added a new volatility to equity markets. It is a high-risk approach and even the most sophisticated computer led firms struggle to get it right consistently.

Your Committee eschews such an approach because it is just too risky. We all know, but occasionally forget, that investments can rise and fall in value. We all know that we might get less back than we invest, but the short-term appeal of the cut and thrust of active dealing is difficult to resist. However, the new technologies do not, in themselves, refute or disable the fundamental attraction of long-term investing. They do, though, cause it to be often overlooked.

Working on a time frame of, say, five to ten years used to be the advice doled out by stockbrokers to their individual account customers. Having that sort of time horizon does not, in itself, guarantee success but it certainly makes it more likely. Recent statistics, published by Lipper IM and analysing the performance of the FTSE 100 Index over ten year rolling periods since 1990 (with income reinvested and before tax or charges) to 2020, show that long time investors were rewarded in all periods: the average return was 95% with dividends reinvested. Of course, past performance does not provide a guide to the future, but it is difficult to imagine a time when patience and perseverance won’t contribute to successful investing.

The pandemic has altered many things and affected human behaviours in ways we are still struggling to get to grips with. One outcome has been deeper reflection upon fragility, but also a willingness to make the most of what we’ve got now before we lose it.

Newer investors have embraced the newer technologies and some are making – and losing – quick fortunes at the touch of a button. But your Committee, ever conscious that it is investing your money, is mindful of the old adages that have stood the test of time. Phrases like “don’t try to run before you can walk” and recognising that “investing is a case of mind over matter” remain as relevant as ever.

Stock market ups and downs are part of the territory of investing. Accepting how to handle and avoid bumps in the road is as key an element of investing psychology, as is carefully identifying talented boards and sound balance sheets. If you’re lucky you might make a quick buck, but that should not be the driving force behind joining the Club. Rather, your aim ought to be to benefit over time from a diversified portfolio of well managed companies that can adapt to change and prosper.

The investment world has changed and continues to evolve. We need to understand that and embrace it. The pandemic has made that truer than ever. Whilst understanding that everyone’s goals and circumstances are different, and investing isn’t a one-size fits all science, your Committee believes that its approach of steady investing across a range of opportunities isn’t going to go out of date any time soon.

John Hattersley – Club Chairman