Nick Samouilhan, multi-asset manager at Aviva Investors, discusses the investment lessons of Lent – and confesses to a few minor transgressions of his own.
Like every good lapsed Catholic, I give up something for 40 days in the run up to Easter. This year I gave up beer and cider, which replaced my initial suggestion to give up alcohol completely, which was judged a step too far given my social and working environment. Forty days later, and I’m through – my colleagues having been kind enough not to put a pink umbrella in my standard gin-and-tonic order.
While it's good for both the soul and the body, perhaps there is something to be said in extending fasting to investing. So, should I have given anything up from an investing perspective? I came up with the following after some thought, having gone through the seven deadly sins to make sure I covered the worst of the worst:
Pride – a common one, as investors think they know what markets are likely to do and know more than most investors. A fund manager told me he used to believe he knew markets early in his career. Now, years later with much more experience, he isn’t so sure. Pride, unchecked, often becomes hubris.
Lust – here the common mistake is chasing short-term performance, lusting after instant gratification. While requiring some patience, there is ample research finding long-term investment horizons offer more chance of generating performance than chasing lots of short-term ones.
Sloth – while few admit to not thoroughly researching every investment decision, an investment process that involves multiple decisions often leads to some being better researched than others. So try focusing on a few ‘big’ decisions, do your homework, think, and then act big.
Envy – growing up, I coveted Skechers shoes. The shoes were seemingly worn by everyone else in my hometown. However, once I saved enough to buy a pair everyone else started wearing Doc Martins. Following the herd, whether shoes or investments, almost never ends well. Investing through jealousy almost certainly means you have mistimed it.
Wrath – the counter to chasing returns is selling your investment too soon. There is an important difference between the perceived value of an investment and its market price. If the price of your investment cheapens, and your investment thesis does not change, the correct response is to buy more of it, not sell it in anger.
Glutton – overeating is probably the sin that everyone agrees is wrong, but does the most of anyway. In investing, this overlaps with the strong desire to do, or be seen to do, something. “Do-somethingitis”, as my old boss called it, is terribly value destroying as it often involves trading costs.
Greed – finally, we come to the “greed is good” sin personified by Gordon Gekko. I’m not generally one to disagree with Michael Douglas’ fictional Wall Street trading genius. However, focusing only on the return (the reward) and ignoring the risk of an investment usually leads to decisions which are looked back on with regret rather than satisfaction.
On the whole, these seven sins seem a reasonable starting point when looking for things to give up for Lent. Looking back over the last 40 days, like many others I can point out times when I committed at least some of these sins. Whether this affected portfolios much I don’t know. The most important thing now is that Lent is finally over.
Nick Samouilhan, PhD, FRM, CFA
Fund Manager – Multi-asset Funds