Buy and Hold Investors Becoming Extinct
Pfäffikon SZ, Switzerland – Investors with a strong endurance are becoming increasingly rare. Now that various investment categories are being stretched and don’t provide the necessary yield, investors are of two minds. The financial industry consists of many unnecessary, opaque shells and over the course of time has transformed itself into an industry of pursuits of extremely short-term profits.
Acquisitions
Some acquisitions and mergers are nothing more than “financial engineering” like is the case, for instance, with the brewers AB Inbev and SabMiller. In that acquisition the love for a beer is no longer important. The recent acquisition of Pfizer is a lowbrow international tax scheme whereby Ireland will function as the new headquarters of the pharmaceutical powerhouse. Coincidentally – or not – the Netherlands has come under fire by the European Union over its fiscal sensitivity.
Fast IPO
The recent Abn Amro IPO is a decent example of realising a quick profit. It remains remarkable and contradictory that the entire Dutch population criticizes the bonus policy at banks but drily participates in the IPO in order to quickly cash in themselves. The IPO simply had to succeed in order to sell the next tranches, privately or publicly. The financial industry subsequently takes advantage of the situation and congratulates itself with this fantastic, quick result; qualitatively the result is very meager. After all, what does it have to do with serious investing?
Shell
Many participants in the financial industry have apparently forgotten what it’s all about and are part of a temporary, opportunistic shell. This behavior is probably hard to eradicate as, by now, the entire industry plays a role in it. Even larger investors are increasingly letting themselves get carried away by consultants and financial advisors in the craze of short-term returns. After all, who has the guts to present an investment proposal which has performed poorly this year? Legendary investor Charlie Munger calls this phenomenon “bias from liking distortion, including to being misled by someone liked.” A decent investigation into how and why is often omitted. In this manner an interesting long-term upward potential is ruthlessly crushed.
Conspiracy
The conspiracy against the buy and hold investor has been in full swing for some years. Buy and hold investors are increasingly allowing themselves to get carried away in the buying up of fast and recent performance in the hopes of improving their results. Apparently they forget that in doing so they are contributing to a process which offers them no benefit in the long-term. There are more than enough illustrious examples that fit this picture. Patience, in this case, is a virtue.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above mentioned shares and has no intention of doing so in the next 72 hours.
