“As an investment adviser, I consider a large part of my role to be a decision coach to my clients.”
Investors are really decision-makers, or they should be
Over the long term, the quality of your decisions, both buying and selling, timing and sizing, is likely to determine the quality of your investment outcomes. Sure, technical skills matter too, but often these are a given.
A useful exercise for most investors is to reflect: what was your best decision in the last year? What was the worst, what was the hardest? Don’t just judge on results, this is a common trap – decisions ought to be the result of the process, and it’s this process we wish to evaluate not the outcome. Over short periods outcomes can be the result of good or bad luck, or good or bad decisions, but over the longer-term luck will level out and the quality of the decision process will shine through.
As an investment adviser, I consider a large part of my role to be a decision coach to my clients – helping them approach (and review) key decisions in productive and structured ways while avoiding bias.
This isn’t a straightforward environment for investors to make decisions, but then again it rarely is. Wherever we look today, investors appear to face a world of extremes: a sharp dissonance between a stock market that reflects very positive expectations for growth, even as economies and communities continue to battle with the fallout from one of the most abrupt and devastating economic and health shocks in history. Bonds offer vanishingly small yields for the most part, while more broadly the investment industry is undergoing a seismic shift: reshaping itself as it needs to give environmental and social considerations greater prominence.
Investors have some tough decisions to ponder:
- How can I generate the returns I need?
- Where are the attractive investment opportunities in today’s world?
- What are the key investment risks looming on the horizon, and how should I position?
- How can I assess and manage the carbon and social impact of my portfolio?
In this edition of Vista
We give you eight articles designed to provide food for thought for investors pondering exactly these key questions:
Nikki Matthews addresses the decision-making dynamics that investors often face, building on the idea of 'groupthink' we’ve previously discussed.
Jennifer Davidson looks at how investors might want to re-boot bond portfolios.
Madeline Chelper updates us on another pressing risk: corporate bond defaults; these haven’t materialised as predicted last year but what does the future hold?
Finally, Jacob Stevens describes a framework we are using with clients to reduce the carbon emissions from bond portfolios.
A Classic case study
Homer’s Odyssey provides an unlikely example of good decision-making practice relevant to investors. Our hero Odysseus knew that to return home his ship would pass close to the island of the Sirens, and he had been warned this could lead to an irresistible desire to steer the ship to its doom on the rocky shores. He ordered his crew to tie himself to the mast to prevent him from steering them all to their deaths.
This is an unlikely example of good in-advance decision-making that has takeaways for investors. What are the situations where you need to tie yourself to the mast to stay the course for your long-term benefit? For investors, the difficulty is it's always a fine line between having the discipline to stay the course vs the flexibility to adapt.