Short-termism - Selecting/abandoning investments at the wrong time for the wrong reason
Rob Brown
Chief Investment Strategist and OCIO Team Leader for Julex Capital Management
Keywords: retirement saving, performance benchmarks, time series properties, investment time horizon, behavioral bias, bear market bounce back, Left-hand tail-risk
Abstract
Short-termism drives our industry’s hiring of new investment strategies and the firing of existing. Investors/advisors all too often, focus and base their decisions on the last “15-years,” falsely claiming that they’re considering the “long-run.” This is unusually true today, with the S&P 500 having returned almost 13% per annum over and above inflation since Feb 2009. The negative impact of this behavior is felt most severely by retirement savers due to the duration, size, and their heightened sensitivity to left-hand tail-risk (no retiree can tolerate running out of money, and will do almost anything to avoid such an outcome).
The objective of this article is to present a twelve-step process that if implemented correctly should mitigate the lion’s share of this problem. To make the proposed solution understandable, immediate, and resonate, we use the strawman of TAA (Tactical Asset Allocation) as the investment strategy/approach under review/scrutiny. TAA was selected because it most clearly represents the challenge. TAA’s unusually easy to define, has a clearcut documented history, data is readily available, and it classically represents the problem examined herein, i.e., TAA quintessentially represents the challenge of decisions based on recent performance.
References
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