Thursday, July 9, 2015

Patience is Key

Even if you lose money in the stock market, there is still the opportunity to benefit. There have been numerous examples of investors who put money into the stock market during periods when the market was flat, and they still came out ahead.

A good course of action is to put money into your long-term investments on a regular basis. Let’s look at one family that had setup their Roth IRAs before the 2007-8 market losses. When they lost money in their accounts, he decided to stop putting money in because he wasn’t sure it was still a good idea. She, on the other hand, kept contributing. The difference in their accounts 5 years later was shocking. You see, even though she didn’t like losing money in 2007-8, she kept investing each month and she bought more shares when the market was low. He, on the other hand, waited for the share prices to go back up before contributing again and, thus, bought his shares at a higher price than she did. Buy low and sell high is still the best idea. So, yes, even though we feel the losses twice as much as we feel gains, consistent long-term investing is a good approach for establishing the kind of retirement you would like.

The Portfolio Managment Approach Matters

When investment experts Peter Lynch and Bill Gross left the funds they managed, the funds seemed to change course.

Unfortunately, at any company or investment, when the bulk of the return is depending primarily on just one person, a lot can go wrong when that person is no longer associated with the entity.

A multiple-manager system can overcome this hurdle when it’s done right. This approach helps combine independence and teamwork, and works better to pursue investment opportunities. A team of managers that share research and resources, but are empowered to act on their own investment decisions, is a method we like to see! It’s like comparing a solid baseball team of 9 players with diverse skills to a team of one superstar player. No matter how great the one superstar is, he can’t cover the whole field as well as a solid team.

Here are some of the advantages of a well-functioning multiple-manager system:

·         Broad Diversification - Each of the fund managers invests in his or her highest conviction ideas. Because of this, the portfolios within the fund are able to contain a highly diverse group of securities.

·         Rigorous Risk Management - Superior long-term performance with less market fluctuations is the result that we’re looking for from the portfolio manager team. This is partially related to the higher level of diversity typically seen with this approach.  

·         Consistency of Objectives - The fund's principal investment group review investments to ensure consistency with fund objectives and overall guidelines.
When all of this is combined, it makes for a fund that is diverse, yet works together like a well-oiled machine.