Investments that double your money overnight are often the most talked about ones. Zoom (ZM) shares rocketing 35% in a day, Nvidia (NVDA) climbing more than threefold in the past 12 months, that kind of thing.
This sends a dangerous message to investors: that slow and steady gains are not good enough; that if you’re not riding the latest wave, you’re not doing it right.
Clearly that is not true. We know that all too often what goes up comes crashing back down (I hate to say I told you so, but did you see the FANG stocks this week?). And while a fund manager running billions of pounds may be able to stomach those losses, what about the rest of us?
So it was refreshing to read Paul Hartley’s tale this week, about how he has abandoned his reckless investing ways in a bid to put his mental health ahead of any potential profits. Money and mental health go hand in hand, and this is something we don’t talk about enough. When we talk about risk appetite and not putting your money into anything that’s going to give you sleepless nights, we should be talking about whether our investments are going to cause us stress, anxiety, or panic attacks.
Anyone who has ever logged into their investment account and seen red numbers will know it’s not a good feeling. Some people will feel that pain more acutely than others and it's important to recognise that.
When we talk about picking the right investments, taking on the right amount of risk, and investing the right amount, we have to remember that means the right thing for our minds as well as our money. Because investing is so much more than numbers on a screen or picking the latest fad stock. It’s about the whole journey, financial and emotional.
Survival of the Fittest
Buy and hold, we’re told. Invest in a fund, don’t look at it, stay with it for the long-term. It’s a good strategy in theory, but not when we consider how few funds last the course.
Morningstar’s annual Active/Passive Barometer is a startling insight into how short the shelf life is for so many investments. In some categories, only around a third of funds reach their 10th birthday. That’s crazy when you think about the many investment trusts that are 50 or even 100 years old. The F&C Investment Trust launched in 1868 – if that can manage more than 150 years, why are so few funds achieving longevity even a tenth of that?
Poor performance, lack of assets, and current trends are just some of the factors that might cause a fund to be wrapped up or merged into another vehicle. If a fund can’t attract enough investor money, then it’s often not economically viable for its parent company to keep it running. If it can attract that money, it’s got to deliver the performance to keep it – that’s becoming increasingly difficult in a world where cheap tracker funds can often do the job at a fraction of the cost.
Part of me thinks the short shelf life of funds is no bad thing, it’s a sort of investment survival of the fittest at work which should leave only the best options for investors. But for every fund that goes extinct you can guarantee at least one other will pop up in its place, flooding the market with the next generation of unnecessary underachievers. That’s the bit that’s got to stop.
Name That Tune
The FTSE reshuffle is always an interesting event. This is when the stocks in the FTSE 100, 250 and All Share are rejigged depending on how their market capitalisation has changed. Some companies find themselves relegated after a bout of poor performance, and others promoted into the upper leagues.
An interesting addition to the FTSE 250 this time round was Hipgnosis Songs (SONG), an investment trust that buys the back catalogues of recording artists and makes money from the royalties. Catalogues among its collection include music by the Kaiser Chiefs, Journey and John Newman to name just a few.
Having launched just two years ago, the trust has quickly climbed up the charts (sorry) and its share price has risen 19.6% over the past year alone. This is an incredibly niche investment that is not without risk, but it does at least show the benefits of something in your portfolio that's entirely uncorrelated to the stock market. After all, there's not much that will stop songs being played on the radio.
