Investment was so much simpler way back in the last century. On the whole, you bought equities, you held them, markets rose and you made money. Nowadays, the fi nance pages read more like a ‘Scandi- Noir’ thriller. Equities are dead, we are told. So is the buy-and-hold strategy. And bonds could follow suit any day now. The only people not making a killing, it would seem, are investors.
One problem with nostalgia, of course, is that it is not what it used to be. The 20th Century certainly gave equity investors some deeply uncomfortable moments but, for their modern-day successors, any thoughts of 1929 or the early 1970s or even this time 25 or so years ago tend to be trumped by the warm glow engendered by the memory of the golden period of the bulk of the 1990s. Those were the good old days all right – when equities were thriving, buy-and-hold was alive and well and every right-thinking individual had an opportunity, no, a duty to quit their jobs and become day-traders. Then the century ended, the technology bubble burst, equities set off on the road to nowhere and nothing would ever be the same again. Only, this is investment and so this time tends not to be diff erent. Take buy-andhold, for example, which – spoiler alert – may not have met an untimely end after all. Numbers crunched by US fi rm Richard Bernstein Advisors suggest the probability of making a loss on an S&P 500 investment held for one day is 47%. That falls to 44% for a holding period of one week, 42% for one month, 33% for one year; 21% for fi ve years and 11% for 10 years. “There are sound economic reasons why extending one’s time horizon can benefi t investment returns,” explains the eponymous Richard Bernstein. “Changes within the economy tend to be very gradual and signifi cant adjustments rarely happen within a short period of time. Certainly, there is plenty of daily news, but how much of that news is actually important and worth acting on? The data suggests very little of that information is meaningful and valuable. Most of it is simply noise.” Something else that remains the same is investors, who duly learned from their mistakes of 2000 – sadly just not the right lessons. Maybe they were distracted by that noise but they concluded equities should largely be avoided and longer holding periods were inadvisable, when in fact long time horizons are perfectly fi ne and there is a very good reason why equities went on to endure their ‘lost decade’. At the turn of the century, the asset class had performed exceptionally well and so was exceptionally highly valued. Anyone who bought into equities in 2000 was set to be hugely disappointed just as anyone today buying into the success stories of the last 10 years is unlikely to end up feeling any diff erent. Maybe then they will learn what Burke and Santayana observed in different centuries about history and repetition. Then again, maybe they won’t.
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