Graham Macdonald, MBE
MBMG International Ltd.
Nominated for the Lorenzo Natali Prize
Getting it Right
The first thing investors have to do is work out what they want from the
investment. Basically, do they want income or growth? How long do they want
the investment for? What is their risk/reward ratio (i.e. how much risk are
they prepared to take for what they want)? This may be stating what Basil
Fawlty calls the “bleeding obvious” but it is amazing to see how many
investors expect high returns with almost no risk.
One of the main culprits for this situation is the hedge fund industry. Some
of the managers seem to say that you can get quite extraordinary gains for
practically no downside at all. This is blatantly not true. No financial
institution can guarantee this 100% - Northern Rock and Icelandic banks
spring to mind! Also, you only have to take a quick peek at how the hedge
fund industry has done as a whole since 2008 to see that low returns are now
Some readers will wonder why I am doing this. What I am trying to do is make
investors realise that it’s practically a given that if you want to achieve
potentially higher returns than the bank offers (and please remember the
aforementioned caveat) then you are going to have to take some risk. Yes,
over the last few years it was possible to beat the bank with comparatively
low risk by just buying certain bonds but most analysts now agree this time
has passed and this method of investment is now considered to be quite a
Another thing that potential investors get confused about is the actual
definition of “Risk”. From a fund manager’s point of view it is regarded as
loss of capital and not the volatility of returns. It is time in the markets
that allows the investor to see ups and downs of market volatility.
Obviously, it has to be understood that people have different time frames
and expectations when it comes to investing. These range from people who
just want to beat the back, to aggressive investors who expect to make at
least 20% returns but are prepared to take on the appropriate risk to
achieve this target. In a Utopian situation, investors would get great
returns for low risk. Unfortunately, this is the real world and this just
cannot happen. MitonOptimal, one of our favoured managers have a great
phrase which is that ‘time in the market’ is much more important than
‘timing the market’. Basically, this means that the longer you stay in the
market then the more chance you have of achieving your aims.
You also have to trust your fund manager. Any good one will do lots of
quantitative analysis which will allow them to then strategically allocate
the right weighting so as to obtain the targeted returns. This will be done
by taking into account such things as diversification, underlying volatility
and historical performance.
Therefore, to conclude, if you allow yourself as much time as possible you
will have a greater chance of getting what you want out of the markets.
Unfortunately, none of us has a crystal ball. The less time you spend in the
marketplace then more chance you have of losing money. As MitonOptimal say,
“In order for targeted returns to be achieved consistently over the
appropriate time-frame, the two key ingredients required are well informed
investors who are clear on how their investment is likely to perform over
time, and a robust investment process geared to delivering those returns.” I
could not have put it better myself!
The above data and
research was compiled from sources believed to be reliable.
However, neither MBMG International Ltd nor its officers can
accept any liability for any errors or omissions in the above
article nor bear any responsibility for any losses achieved as a
result of any actions taken or not taken as a consequence of
reading the above article. For more information please contact
Graham Macdonald on [email protected]