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Richard Scrope
Fund Manager
Whether it be the late flurry of snow that has fallen on the European Alps, or the desire to see some sun after the winter months, the forthcoming long weekend has the potential to give all investors time to reflect on the eventful first quarter of 2022.
As Benjamin Graham famously said, “The worst enemy of the investor is most likely himself” and so the ability to take a step back and rise above the short-term market noise can have a positive impact to performance as market and investor heuristics are best avoided. Given the increase in market commentary, news sources and internet traffic, market noise has become loader than ever, making the ability of rising above it a skill in itself.
Reacting to short-term trends is a dark art that is mastered by few, and not one that this Fund manager claims to possess. The key for any investor is to identify what news is relevant and that which is likely to only affect asset prices in the short-term. The ability to have a long-term investment horizon and not trade on every piece of market news should bless the investor by lower transaction costs (otherwise know as a tax on performance) but also what Albert Einstein termed the ‘eighth wonder of the world’, namely the power of compounding. The charts below depict the benefits that can be derived from a buy & hold strategy over time and embracing the power of compounding.
As described by Tversky and Kahneman in their 1974 paper, ‘Judgement Under Uncertainty: Heuristics and Biases’, heuristics are “principles which reduce the complex task of assessing probabilities and predicting values to simpler judgemental operations.” While they acknowledge that these principles can often be quite useful, they also risk leading to severe and systematic errors. I would encourage every investor to read Thinking, Fast and Slow by Daniel Kahneman. One example he likes to use to show how the mind likes to jump to conclusions is the illustration below and to ask which figure is the largest, which of course is a trick question, but shows the benefits of clearing your mind and let logic and facts play their part before forming a conclusion.
There are a plethora of heuristic tendencies that are found in the investment world that range from confirmation bias to gambler’s fallacy and loss aversion, but what is important is to be aware of them, and what they represent in order to avoid inadvertently falling foul of them. Closely related to minimising heuristic tendencies is the use of checklists before investing, which should minimise human nature’s desire to jump to a conclusion before assessing and assembling all the facts, but almost more importantly, is the ability to sit back and take a moment to reflect once all the necessary data is collated. After all, loss aversion recognises that the pain of losing is psychologically about twice as powerful as the pleasure of gaining.
In the words of Captain Oates: “I am going out and may be some time”.
WARNING: All information about the VT Tyndall Global Select Fund(‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and not