Advertise Here
Icon

Directory

IconAlternative Investments
IconAsset Managers
IconAssociations and Institutes
IconBBBEE Consulting and Verification Agencies
IconConsumer Protection
IconCorporate Governance
IconCredit Bureaus
IconFinancial Planners
IconInvestment Consulting
IconLinked Investment Service Providers
IconListed Equities
IconOmbud
IconOnline Share Trading
IconParticipation Bond Managers
IconProperty Unit Trusts
IconPublications
IconRegulatory Authorities
IconStock Exchange
IconUnit Trust Fund Managers
IconWellness Programs
Advertise Here
  Subscribe To »

Just thinking long term is not enough

Published

2020

Mon

16

Nov

Along with many others, we often emphasise the importance of not giving in to your emotions and avoiding making rash, short-term decisions. Yet despite this, plenty of investors still fall prey to their emotions. So, what is the secret that sets successful investors apart from the rest? Investors are often told to take a long-term view, which can imply a rather passive approach.  Interestingly, simply thinking long-term is not enough.

 

Investing long-term does not mean simply leaving your money invested for a long time

If you left your money invested in the wrong things for a really long time, it would soon be worthless. Think about how quickly some technologies become obsolete and are replaced by something else. Consider how publishing houses (that have in the past helped some individuals amass incredible private fortunes) have been superseded by social and digital media. Or how fast valuations change driven by sentiment, providing opportunity to lock in some gains and pick up bargains.

 

Companies and industries change over time

Even if you had invested in a good company at the time, you would need to consider how the prospects of an investment change over time. These changes can be because of internal factors (maybe their management team makes a poor acquisition or they gear up at the wrong time), or due to external ones like their competitive advantage eroding because of technological changes,  societal shifts or other macro changes in specific industries (e.g. the oil industry). If 2020 has highlighted one important factor, it’s that things can change a great deal in a very short space of time, sometimes for microscopic reasons! Industries are born and die. Some of today’s giants like Facebook have not even been listed for ten years. 

 

Market movements move your investments too

Your portfolio may become more concentrated if one share or sector outperforms over time. This effect can be amplified because people often become attached to past winners, and may become reluctant to sell them because “they have done so well” and perhaps also because they don’t want to miss out on “even more” growth, or pay tax. But portfolios need to be rebalanced from time to time and brought back in line with your risk profile. Rebalancing is an art, which lets winners run, but not indefinitely, and facilitates rotation into undervalued areas. 

 

Long-term investing means continually rethinking the long term

One of the cornerstones of a solid investment process is continually assessing the strength of a company’s moat, or business model. Strong moats are hugely valuable but can be weakened by external factors and competition. A good example of this has been the acceleration of the pressures on physical retailers. An already threatened industry, whose moat included their prime locations, saw 2020 crush their moats, with share prices following suit, unless they already had a strong digital model. Of course, the pendulum of share price reaction often swings too far, and there were exceptional buying opportunities in these beleaguered sectors this year. For instance, the US Retail ETF has done better than the Nasdaq over the past six months, with shares such as Pandora and L Brands showing spectacular recoveries and far outpacing the Nasdaq even over the past year, albeit from a depressed base. It is the combination of understanding long-term shifts in industry dynamics combined with a rational assessment of long-term fair value that leads to successful investing.

 

A robust portfolio is constructed of investments that complement each other to deliver the desired investment experience over time. It is important to adjust portfolios to manage risks as they emerge and include future growth drivers. Long-term investing is, at its best, an activity that is constantly undertaken.

 
Source: Anet Ahern, CEO, PSG Asset Management
 
« Back to previous page Print this page » |
 

Breaking News »

Bitcoin: guidance from an actuary on how to channel your fear of missing out

As the price of Bitcoin breached US$50 000 (around R740 000) in the past week, the fear of missing out once again hit all-time highs for many investors. According to South African actuary, Imran Lorgat, a sure ...
Read More »

  

COFACE SA: Moody's raises the outlook for Coface to “stable”

The rating agency Moody’s, on 10th February 2021, has confirmed the financial strength rating (Insurance Financial Strength – IFS) for Coface at A2. The agency has also raised the outlook for Coface, ...
Read More »

  

ADJUDICATOR SLAMS PRIVATE SECURITY SECTOR PROVIDENT FUND FOR NOT TAKING ACTION AGAINST DEFAULTING EMPLOYERS

Regulatory compliance in the private security industry remains a sore point as more complaints land on the desk of the Pensions Funds Adjudicator. The majority of the complaints prevalent in this sector ...
Read More »

  

Planning for your child’s education in 2021 – is it really worth it?

With schools opening and closing throughout last year and the opening of schools delayed to 15 February this year, it is difficult for parents to plan and make decisions regarding the future of their children’s ...
Read More »

 

More News »

Image

Healthcare »

Image

Life »

Image

Retirement »

Image

Short-term »

Advertise Here
Advertise Here

From The Glossary »

Icon

Minimum Premium:

The lowest monetary consideration for which a policy will be issued. In some cases this is also the amount retained by the company in case of cancellation by the insured.
More Definitions »

 

Advertise

 

eZine

 

Contact IG

 

Media Pack

 

RSS Feeds

By using this website you agree to the Terms of Use.
Copyright © Insurance Gateway (Pty) Ltd 2004 - 2021. All Rights Reserved.