Success is often defined as winning. If we consider an Olympic Sport such as the 100 metres, to get to the final is an achievement. There will be tens of thousands of people who run the 100 metres, but only a tiny number will get to the Olympics, let alone the final. And yet, if we come last in the 100 metres, it is seen as a failure.
In football I have highlighted how success is the only option; managers do not have time to rebuild teams because fans and owners want instant success. The average premiership manager lasts less than two years.
Investment money carries the same challenges. I have been managing money since 2011. Below is a chart from FE Analytics of the performance of my four principal portfolios.
You will see I have doctored the dates to make it look more favourable. The returns are between 7.25% and 9.77% per annum. However, this is half a picture because the chart ends on 31 December 2021.
From 1 January 2021 to 31 October, this is what has happened.
The annualised returns have dropped to between 4.67% and 5.95%.
Based on how the world views success, I probably, like a football manager, am facing the end of my tenure.
Like everything, there is a story to these portfolios and what has been achieved. When investing money for clients, there are two things to have in place. Firstly, a process and secondly, a process that follows the process!
What do we mean by this? It is straightforward to write an initial process; the tricky bit comes from managing it and then communicating it with clients. This is something that has been built up since 2011.
Putting 2022 and 2023 into perspective, there are reasons why the performance dropped back. War in Ukraine impacted global supply chains worldwide, with rising inflation, rising interest rates and recessionary uncertainty.
Far from hiding, we made changes to the systems we used to enhance the reporting, we introduced an investment risk analysis into the business, and we had a deep review of everything we invested in.
Like any football manager would make changes to the team to enable them to perform better, we made tweaks to the portfolios because the world is changing, but fundamentally, the process and style of investing have not.
Communication has been one of the key elements over the last twenty months as we try to provide facts to clients. We believed that we were close to the bottom of the market. This is purely based on data rather than trying to be forecasters.
Ironically, success is about how good you are in the here and now. Time ran out, and we will never see if what we felt would happen will come to pass. This is the performance for November (including the Positive Impact Portfolio which was launched in 2014).
When it comes to investing, our task when managing money for clients is to deliver a sustainable return without taking massive risks. The last twenty months have been challenging, but the process remains robust. But when clients (or for football teams, fans and owners) focus only on the short term as a measure of success, we are doomed to failure. However, if we look over the long term, success can be viewed differently.
The trick to investing is to understand the manager, keep up the research and don’t panic when it seems to be going wrong.
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