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Time perspective - The key to breaking out of investment poverty

Posted by: Brian Dennehy

 

If the world was a simple place our Dynamic Fund Ratings alone, without a further thought, would solve all of your problems.  But the world is not just a complex place but it is also very dynamic. 

If you become a Gold Member and make lots of money because Dynamic Fund Ratings put you in funds that do well you might think we’re geniuses.  Or you might join but, with the benefit of hindsight, think you'd have been better off investing elsewhere because returns aren't as spectacular as you'd hoped. 

Both conclusions would be incorrect.

Our Dynamic Fund Ratings are based on the idea of Momentum Investing which has been proven in many research papers spanning decades.  These ratings would be all you needed IF:

  • we were all perfectly mentally balanced
  • we were all well organised and never distracted
  • the markets behaved themselves…
  • …with just moderate volatility (but nothing to scare the horses)

If the world were this simple our Dynamic Fund Ratings would be a standalone and perfect solution.

But the world, whether investing or otherwise, is not so straightforward.

You can’t buy the tools you need from a DIY store.

To be successful you must align your plans with how the world really works.  Dynamic Fund Ratings are a start.  They recognise the reality – proven many many times over many decades by many different people – that the investment which has been going up more than most relatively recently (say the prior 6 months) has a very strong tendency to keep going up similarly in the next 6 months.

But your investing plan must also take into account these real-world factors:

  1. you (and all of us) are not so mentally well balanced
  2. few people excel at personal organisation (however well they might manage their working environment)
  3. our lives are full of day to day distractions (starting with our family life and our day job)
  4. markets are not consistently predictable in any practically useful way
  5. markets risks are much greater, and less predictable, than maths would have you believe
  6. markets can go down and stay down in ways which can destroy your life plans
  7. our Dynamic ratings provide a high probability of success over longer periods, but will not succeed over all shorter periods

You will not achieve perfection by allowing for all of the above into your investment pan, but you will move the odds of success very strongly in your favour.

As Abraham Lincoln said:

“Give me six hours to chop down a tree and I will spend the first four sharpening the axe”

Investing success isn’t derived from being fast or clever.   It is about being smart.  Being smart means thinking first, thinking slowly, and acting calmly. 

A clear plan will enable you to think more clearly, which in turn will improve the quality and consistency of your decisions, and the quality and consistency of your results.

From your conscious investment plan, you will develop good habits, habits being those actions which feel automatic and not stressful.

Uncertainty is very mentally demanding, and when you are investing you literally buy uncertainty.  A vital objective of your plan must be to reduce mental stress – the rules and guides in your plan are pre-commitment that should avoid you having to make quick decisions under stress – that would be a recipe for bad decisions. 

Basic stuff but it needs repeating.

Practice, practice, practice.  And good habits and outstanding results will follow.

But “outstanding results” will follow when?

This is the problem of time perspective – impatience if you like. 

Successful people are intensely focussed on the future, the future being years ahead.

The very act of thinking long-term sharpens your perspective and dramatically improves your short-term decisions-making.

So, when will outstanding results follow?  Over years.  There will be bumps in the road but, to paraphrase Benjamin Disraeli, beware of trying to be a great investor in a hurry.

FURTHER READING

Topic: Portfolio building


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