At an energy risk management seminar in Hong Kong last week, the course leader remarked that the Chinese businessmen he does business with either come from, or are focussed on, building multi-generational dynasties.
That is very similar to the way that real wealth is created in investment markets, namely the identification of long-term goals and then the application of sufficient persistence and patience to apply that strategy until those long-term goals are achieved.
Hence (A) the old saw that ‘asset allocation is far more important than stock selection’, and (B) MitonOptimal’s approach of tolerating short-term volatility to earn superior long-term investment returns.
In behavioural terms, people typically overestimate how much can be achieved in the short term, but equally underestimate how much can be accomplished in the long term.
In behavioural finance, this leads to an obsession with the measurement of, and decision-making based on, meaningless short-term data. This is particularly counter-productive when the short term data is not read in the correct context e.g. if an investor does not know the volatility of the market he is investing in, how does he distinguish between meaningless static or a real change in the direction of the market?
Nonetheless, at this time of the year, most people are more involved with travel plans, Christmas stockings and family matters than the minutiae of risk-adjusted returns. Those of you with an eye on 2017 however, will do well to spend some time reviewing the successes and errors of 2016. And to spend some time planning not only 2017 but for the next generation and their children too.
Travel safely, enjoy a happy festive season, and I trust that you will all return refreshed for 2017.
Building Multi-Generational Dynasties
