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The modern world is fast, very fast. With the proliferation of smartphones and tablets, comes instant access to information, news, music and friends or colleagues across the globe. We can shop whenever the mood takes us, order food to be delivered 24/7 and even get medical advice at the touch of a button. Waiting for things seems so 20th century.
The increasingly breakneck speed at which we operate in the modern world is reflected in the investment environment. This is illustrated by a trend which has developed over the last four decades towards chasing short-term results from investment. Whilst populations around the world are living longer and requiring larger pension funds to see them through more years of retirement, investors and asset managers are, conversely, reticent to take a long term perspective on investments, instead focussing on more immediate results. According to one study the length of time stocks are held for has been diminishing steadily over the last five decades – from an average of over 15 years in the mid-1970s to just 1.67 years in December 2012*.
There are a number of factors contributing to this short-termist approach. Market research in the sector tends to concentrate on short term gains and focus on quarterly performance while neglecting medium and long term growth. Similarly the performance of investment professionals tends to be measured in a way which encourages them to favour short term investment policies over a more long term view. Knee-jerk reactions to short-term company announcements such as missed quarterly earnings estimates can also skew the market.
The insatiable appetite of the financial media for newsworthy content further exacerbates this trend. The financial pages need to be filled daily with commentary, advice and predictions, and stories of dramatic gains or losses are more media-friendly than the news that a company has been performing solidly over a longer period of time. A skilled investor will be able to filter the useful information from the chatter and react only to the information that is truly relevant.
While life expectancy rises, fertility rates are falling, putting pressure on a smaller working population to support an increasing number of retirees claiming pensions, in many cases for longer than was originally accounted for. In order to counteract this, it may be time to reverse the trend towards focussing on short term investment performance and look at investing in more sustainable earnings growth in the mid to long term.
At Infinity we see the value in long term approach to savings and investments. Our investment management partner, Bestinvest is the UK Wealth Manager of the Year. Bestinvest have a robust investment process based on high quality research and portfolios diversified over all asset classes. Independent research shows that the Bestinvest process provides favourable and consistent returns when compared to market benchmarks and their leading competitors.
*Source: Ned Davis research, December 2012
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