Christmas Eve is one of the favourite days in our home, enjoyed by parents as much as our 7 and 8-year-old children. This year, Santa’s progress was watched online with rampaging impatience and was accompanied by questions every five minutes of “Mummy/Daddy when will Santa arrive?”
Investment managers, media, consultants and clients mirror this understandable constant monitoring of progress in the investment industry. Whilst it is desirable, indeed essential in most cases, for investments to be monitored it seems to have become an over fascination in comparison to the time spent on establishing initial and changing lifestyle needs.
Affinity believe investing is a long-term assignment although much of the industry seems to have become too focused on the short term. The positive attributes of being able to monitor portfolios on line and the great progress made standardising the way investment managers report to clients allowing comparisons across peers is welcomed. However, is this more important than the in depth assessment of financial needs and how these are met by the manager and has monitoring contributed to short termism?
The average holding period of investors in the US NYSE in 1940 was around 7 years. For the next 35 years up until the mid-1970s, this average holding period was little changed. But in the subsequent 35 years average holding periods have fallen. By the time of the stock market crash in 1987, the average duration of US equity holdings had fallen to under 2 years. By the turn of the century, it had fallen below one year. By 2007, it was around 7 months. Impatience is mounting.
For the UK the trend is the same but the window is shorter window. By 2007, it had fallen to around 7 1⁄2 months. With the shortest window is reserved for investors on the Shanghai stock index, where the mean duration is closer to 6 months. This has to be considered as speculation rather than investing.
The role of the professional wealth manager is to truly understand investor’s needs and then manage their money to match them. This should include an assessment of all the clients’ assets, near and long-term liabilities, income and lifetime expenses of the family as well as tax, structuring and succession issues.
In our experience these aspects of a clients wealth planning are under less scrutiny than the monitoring of portfolio’s. They should at least have parity of importance and client needs have lifelong not short term measurement periods.
Santa always delivers, investment managers do not so monitoring is required but are the right questions being asked and is the frequency causing managers to become too short term?