In his latest article titled – Sharpening the Allocator’s Edge: Managing the Client Experience of Owning Alternative Investments Through Effective Communication, Phil Huber discusses the long winters that investors need to prepare for in investing. Here’s an excerpt from the article:
Time dilation is all too real in the realm of investing—especially when things aren’t going your way. Days can feel like weeks, weeks can feel like months, and months can feel like years. In the context of an investor’s lifecycle, five to ten years is not that material. Good luck telling that to the investor.
Most investors have a much longer horizon than they give credit to. Even a newly minted retiree has another 20-odd years of life expectancy ahead of them to plan for. Human nature leads us to think of the long term not as point A to point Z, but to each letter of the alphabet along the way.
This poses tremendous challenges to our ability to recognize these long horizons as a benefit in our decision-making. Investment portfolios are generally designed to support the spending needs of our future selves decades from now, but you wouldn’t know it in how our behavior manifests.
Alternatives get a much shorter leash for underperformance than traditional investments owing to their novelty and unfamiliarity. We must remember that bad things happen to good processes. More often than not, when something seems broken it is usually just bent. Investors should foster a similar long-term view for non-traditional investments as they would for stocks—the seeds need time to grow.
That doesn’t mean you should never consider that something has permanently changed. There is a difference between being disciplined and patient versus being rigid and stubborn. Always keep an open mind, just not so open your brain falls out.
As cliché and trite as it seems to say, giving any investment with a positive expected return a long enough runway to succeed is paramount to success. As I type this, I can almost hear you saying, “easier said than done.” Asset managers, financial advisors, institutional allocators—we are all under immense pressure to deliver short-term results.
Even the most long-term oriented among us will recognize that the long term is merely a chain of interconnected short terms, each of which must be lived through by somebody. As allocators, the key thing is making sure we are doing our damnedest to put our constituents in a position to win, and to do whatever is within our power to ensure that journey is as smooth and free of turbulence as possible through our communication, education and responsible setting of expectations.
You can read the entire article here:
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