As the world’s stockmarkets continue to show considerable volatility, pick up some useful tips from Aberdeen Asset Management's guide to the 7 deadly sins of multi-asset investing narrated by the lovely Joanna Lumley
Mike Turner, The Head Of Multi-Asset Investment Solutions At The $480 Billion Fund Manager Aberdeen Asset Manager, Highlights Some Of The Behavioural Traps And Temptations That Lie In Wait For The Unwary Investor
Click The Arrow To Watch The 7 Deadly Sins Of Multi-Asset Investing
7 Deadly Sins Of Multi-Asset Investing
Multi-Asset investing is part of the Thinking Aloud magazine channel from Aberdeen Asset Management.
For an informative ebook on each of the 7 deadly sins of multi-asset investing, click the blue button below.Cautionary Tales For The Modern Investor
Sin 1 - Lust
Resist The Siren Call Of Short-Term Opportunity
“Investing for the long term sounds like an obvious strategy, but it is surprising how few investors actually adopt it. In our fast-paced world, the desire for instant gratification can overwhelm,” the group explained.
The prospect of immediate gain or desire to jump into the latest hot stocks or sectors can prove harmful, since these strategies frequently are followed “long after the opportunity to profit has passed,” Aberdeen says.
“A less lusty approach that weathers market ups and downs over years, not just weeks, almost always proves more fruitful — as well as cheaper — in the long term,” Turner said.
Sin 2 - Gluttony
When It Comes To Information, Less Is Very Often More
Don’t get lost or overwhelmed by information and analysis being thrown at investors online, on TV and radio, and in print.
“Simpler but disciplined analytical frameworks can be the most robust,” Turner said.
When evaluating asset classes, it’s best to look at yields and growth prospects.
“If valuations are high (and therefore yields are low), the chances are that valuations will fall (and therefore yields will rise),” he said. “Conversely, if yields are high, there’s a good chance that they will fall and valuations rise.”
Muster the discipline to screen out “market noise,” which few did during the dot-com bubble, when many investors chose to count eyeballs, instead of looking closely at company cash flow.
“When it comes to information, less is very often more,” Aberdeen stressed.
Sin 3 - Greed
If Everyone Else Is Investing, Probably Best You Don’t
“Whether it’s equities, bonds or property, the avarice of the herd is always to be treated with caution,” the group explained.
When investors are piling in to a stock or sector, it’s good to steer clear or even sell. At the same time, when there is market agitation or investor rejection, this may “provide rich territory for smart, selective investors who know what they want to buy and why.”
Equal discipline also is required when it comes to keeping portfolios balanced.
“If everyone is moving to equities, it can be tempting to sacrifice your fixed-income exposure. But with that, you could also jettison your risk diversification,” the investment group said.
Sin 4 - Sloth
In Investment, There Are No Short Cuts
There are no shortcuts when it comes to successful, well-planned investing.
“In fundamental equity investing, that means doing all the hard work to get to understand every single company first hand — finding out where performance is coming from and how it can be sustained in the future,” Aberdeen explained in its report.
There’s lots of homework to do when buying bonds, too, of course.
“Only through this grunt work do we really understand what the right valuation for an investment should be,” Turner wrote.
Overall, the moral is not to be lazy in doing due diligence, the group says, and to “rest comfortably once a sound long-term decision has been made.”
A properly diversified portfolio can allow you to feel like you’re in “an oasis of calm.”
When equities fall, fixed-income holding should be stable, for instance.
“Allocating to the highest-quality assets you can find across a spread of lowly-correlated asset classes remains arguably the most sensible protection,” the group noted.
Sin 5 - Wrath
Being Diversified Is The Key To Calm – Even In Volatile Markets
Tracking or bugging a benchmark is “a cardinal sin of the ‘active’ investor,” Turner points out.
“The sin with this approach is partly that it’s lazy and unthinking. It means you are constantly investing only in assets that have done well in the past, rather than those that might do well in the future (stocks only enter indices following good performance and leave after poor),” the Aberdeen report noted.
Instead, consider investing in assets that offer potential for future return at the “appropriate level of risk.”
Modern multi-asset strategies, the group explains, focus on measuring themselves against “the tangible and absolute concept of a risk-free return,” which is a benchmark well worth outperforming for many investors.
Sin 6 - Envy
Imitating The Index Is The Poorest Form Of Flattery
Being overconfident can prove fatal for investors, since it causes them to make the same mistakes over and over.
Plus, strong feelings of overconfidence tend to come before a fall, as in the dot-com bust.
“Whatever your assessment of your own confidence, spending more time asking yourself why your judgement could be wrong, rather than gathering proof that it is right, can lead to a better outcome.”
Sin 7 - Pride
Over-Confidence Comes Before A Fall
Instinct and emotion easily override sense and logic when it comes to investing.
To be a “virtuous” investor requires that you “resist impulsive behaviour, screen out market noise, remain thorough in your research and stay calm and dispassionate whatever market conditions you face,” Aberdeen argues.
Armed with the knowledge of which vices to avoid, good habits should now become at least somewhat easier to cultivate.
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