Most investors are seeking to achieve long-term financial goals in an investment universe that is often fixated on short-term thinking. Short-term performance data, volatility, and momentary market trends travel fast in the digital world, helping to encourage investors to make emotional decisions. However, growing investment capital and achieving long-term financial objectives most often requires patience and discipline. I recently spoke about these issues with Sarah Williamson, CEO of FCLTGlobal, an organization that works to foster and encourage a longer-term perspective among investors worldwide.
Olson: Can you tell us a little bit about what FCLTGlobal’s mission is?
Williamson: FCLT was established by big pension plans, including the Washington State Investment Board and the Canada Pension Plan, and large asset managers like Natixis and many others, and big companies, like Unilever, AT&T, and others. Our goal is to think about how players across the capital markets work together – or against one another – to encourage short-term behavior. We want to turn that around and encourage more long-term behavior in the capital markets. So essentially, we’re trying to rewire the capital markets to be longer-term.
Olson: You’re taking on a big project? What are some examples of the problems you’re trying to solve?
Williamson: What we see is that people make decisions that are not in their own best interest. The traditional economist would tell you that people are rational and the decisions they make are the decisions that are best for them. But we see time and again that people make decisions that don’t make sense. Work we’ve done with the consulting firm McKinsey has shown that 55% of chief financial officers would postpone a value-adding project if taking it on meant missing their quarterly earnings guidance by one penny. They know and admit it’s the wrong thing to do, but they feel this pressure to hit the number in the short-term and worry about the long-term later.
Olson: What are some of the tangible impacts of short-term decisions are for investors?
Williamson: I think the most common decision that we see investors make that hurts them in the long run is the classic “buy high, sell low.” They’re doing well, things are going along – and then there’s a market break. They sell into the downturn and sit it out. When the market is back up, they buy in again.
The reason most people do that is this “multi-time horizon” problem. Let’s say they’re saving for their retirement 20 years from now – they can’t just put it aside for 20 years and not worry about, life doesn’t always work that way. So what we see is too much short-term reaction to markets, too much short-term reaction to loss.
Olson: So how do think investors can work to change that kind of behavior?
Williamson: I think the best way to do it – and this goes for both individual or institutional investors – is to really think about what the long-term objectives are and how close you are to achieving them. What is this money for? What is the objective?
If somebody thinks they’re really good at timing the market, go for it. But almost nobody is, so perhaps there are other ways to add value. It’s important to have a decision-making processes thought out in advance and think about things when we’re not under pressure. We make better decisions if we think about them when we’re not under that short-term pressure.
The views and opinions expressed may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. Unless otherwise noted, the opinions of the authors provided are not necessarily those of Natixis Investment Managers. The experts are not employed by Natixis Investment Managers but may receive compensation for their services.
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