The investment adviser Charles Ellis famously pointed out in 1975 — investing is like tennis. For professionals, it is a winner’s game. But for amateurs, it is a loser’s game.
“Professionals win points, amateurs lose points. Professional tennis players stroke the ball with strong, well-aimed shots, through long and often exciting rallies, until one player is able to drive the ball just beyond the reach of his opponent,” wrote Ellis.
“Amateur tennis is almost entirely different… the ball is fairly often hit into the net or out of bounds, and double faults at service are not uncommon. The amateur duffer seldom beats his opponent, but he beats himself all the time. The victor… gets a higher score because his opponent is losing even more points.”
I do not think I like the term “loser”, but I get his point, which is that is that if you do not have a structured, repeatable approach to portfolio management, which you implement year in year out, your portfolio can fall apart.
The analogy echoes many studies completed over the years that have found that the investors worst enemy is often themselves. At IronBright we review the Dalbar Report every year which continues to re-enforce that individual investors regularly underperform relevant benchmarks due to poor behaviours and lack of discipline, which is summarised in the well renowned ‘The Behaviour of Individual Investors’ paper Barber & Odean – “The behaviours deleteriously affect the financial wellbeing of individual investors”.
Deleteriously – what a word!
But then this begs the question: ‘Is your professional investment adviser sufficiently, and smugly, equipped to deliver better returns”? Uncomfortable question, which I bravely put to the test looking at our portfolios against their respective benchmarks over the last 5 years, which has been a challenging period to both amateur and professional alike.
Benchmarks can be completely misleading, but we have ours about right. They offer the same asset allocation as the respective portfolio with the projected asset class returns as those prescribed by the FCA, which are reviewed on a regular basis by PWC e.g., UK equities 7.00% p.a. and UK Corporate Bonds 3.00% p.a.
The chart above shows a selection of IronBright portfolios, which hold the majority of our clients’ assets -very relieved to report that we are ahead of the game. “15 – love the Professional”.
Pleased, relieved and certainly not smug….honest.
As you read this, we have just passed the third of the five dates in the Government’s tortuous pathway to normality.
I haven’t yet ventured out for my “Alfresco” pint. It’s just not the same in a hat, scarf and gloves! Nor have I been for a haircut as I don’t have any hair, as many of you will know.
Outdoor sports is back which is very welcome in the Rylett household. Things have moved quickly from being virtually housebound every evening to out every evening. I shouldn’t complain.
I have seen my parents for the first time in a long while which was wonderful and very emotional after an extremely tough time as my father suffered a stroke in January and has been recovering slowly. The care and support he has received from the health services despite the pressure it is under has been second to none.
I have a summer break in Cornwall to look forward to although the one in Greece remains doubtful.
I had my first jab today so it is great that the rollout programme continues to thunder on and reaches us youngsters!
This is all good news and the mood has definitely been lifted. I hope that you are enjoying the relaxations too and we would be interested to hear what you are doing for the first time in a while.
Who knows what kind of world we will be re-emerging into?
It won’t be until the furlough scheme(s) end and the economy fully resumes that we will know the true state of things.
I wish with every fibre in my body for the good health of small businesses, the backbone of this country in many ways.
Time will tell. I don’t pretend to be optimistic but then I don’t know what the future holds – and nor does anyone else, for the record.
Spring is a time of renewal, of promise. Let’s put the rubbish year and a bit behind us and move on.
Now that we have some of our freedoms back, I sincerely hope that you won’t be waiting for our weekly update to land in your inboxes on a Friday afternoon. Hopefully, you will be out doing something much more fun. We will be continuing with these but moving them to monthly. I do hope that our little updates have helped in some way to get you through one of the most challenging periods some of us have ever or will ever face.
Onwards and upwards.
Damien Rylett CEO