How to be a better long-term investor

A long-term investor is "an investor who can hold any investment strategy for as long as they wish". It's been proven that long-term investing yields the best returns. However, we are faced daily with "emotional behaviour" inducing illogical decision making.

A long-term investor does not base investment decisions solely on the returns expected over short time periods of, say, a year or two. Such behaviour can lead to small pieces of news without much information content having disproportionate impacts on the price of our investments. It could be said that a long-term investing is therefore not just about the investment horizon, but also about the control that you have over your capital by:

• limiting drawdowns on the capital by ensuring sufficient liquidity is available for short term needs
• not base investment decisions solely on the returns
• the ability to make independent decisions at arms-length from media information overload

In a recent article by Shaheed Mohamed from Allan Gray writes about, "How to be a better long-term investor":

Our behaviour is driven by emotions that are often affected by common biases which can lead to poor investment decisions. This can simply be illustrated by tossing a coin repeatedly. If you toss a coin 10 times and it lands as heads, what are the chances of another head on the 11th toss? When presented with information we interpret it according to our own biases, and then react to the information. Most of us are prone to drawing over-strong inferences from previous, especially recent events or trends. The first 10 tosses of the coin have no bearing on the 11th toss. There is still a 50% probability of a heads or tails.

Information overload is a daily occurrence. Psychologists and behaviour scientists’ research have shown that there are over 100 behaviour biases which lead to errors in judgement and irrational decision making. These include overconfidence, fear, greed and confirmation bias.

Read the full Allan Gray article: How to be a better long-term investor

Our integrated wealthcare approach is based on your personal priorities and aspirations. This process is designed to give you a clear course of action for pursuing your goals that span various time horizons and life stages to empower you to do extraordinary things with your wealth, both now and in the future.

Regards,

Shane Thom, CFP^® GTP(SA)™
Managing Partner: Integrated Wealthcare Advisor