I saw a commentary recently from Mawer Investment Management Ltd. that caught my eye. The title of the piece was “Tides not Waves.”
The focus of the article was a simple one, but one that I think is useful to always keep in mind: Be concerned about long-term themes and not short term “noise.” As regular readers know, at HG Partners we do not attempt to build portfolios of individual securities for our clients. Rather, we try to assemble a great team of professional money managers to accomplish that for ourselves and for our clients. That said, one of the key things we look for during the manager selection process is to find individuals who consistently have taken that approach.
The tide and wave metaphor is an excellent one. If you’ve been on a beach for a couple of days you probably have noticed the “high water mark” in the sand. It’s not the result of individual waves crashing in, however powerful they may be. It simply demarks the maximum inflow of the high tide.
In the markets, as on the sea coast, what really moves things is the tide, not the waves. The waves come and go. One day can be almost dead calm, and the next filled with furious waves. Every day on the water is different with the waves. But the ebb and flow of the tide is constant.
The article points out that the day to day events that dominate financial reporting are the waves of the market. They come and go, but in the end are relatively inconsequential. In my experience, the most successful managers have been those who understand that their energy ought to be directed to focusing their attention on understanding what really drives longer-term results, the tides. The commentary also notes, and I agree entirely, that knowledge of the “tides” can be hugely important in assessing investment risk. In the end, over longer periods of time, it is almost always the managers who best understand risk who produce the best returns. Often it’s not about how much you make in good markets, but how little you lose in bad ones.
Overall, our managers have been focused on the tides and not on the waves. There have been and will continue to be shorter-term periods where their performance lags. Looking back to a period not so long ago, 2008, most investors, and most professional managers, lost money. But that is not, to me, the measure of performance. The true measure is performance against an appropriate benchmark over at least a five year, and ideally a ten year, period.
Not the waves, but the tide.
President, HG Partners Limited
Director, Private Client Group &
Senior Financial Advisor,
HollisWealth Advisory Services Inc.
This article was prepared solely by Howard Goodman who is a registered representative of HollisWealth Advisory Services Inc. (a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation). The views and opinions, including any recommendations, expressed in this article are those of Howard Goodman alone and they are not those of HollisWealth Advisory Services Inc.
HollisWealth is a trade name of HollisWealth Advisory Services Inc. ® Registered trademark of The Bank of Nova Scotia, used under license.
HG Partners Limited is an independent company. Scotiabank companies have no liability for activities outside of HollisWealth.