15 Oct 2010 | Robert O'Riordan

The Long Term Horizon 

Why a long term perspective is invaluable and why there is natural match with the investment trust structure.

There are two aspects to this – the first is very obvious and true – seeing the wood for the trees is crucial and extremely hard in investment.  It takes great discipline, but by trying to take a position that looks over the peaks and troughs of short term movements one gains both perspective and direction. It is very hard to see where you are going when down in the valley, however, if you can get a view over the other hilltops you stand a much better chance of success. Having this long term view is a mindset and one which is increasingly rare.

So why does the investment trust structure allow a manager to do this?  Very simply he or she does not have to deal with inflows and redemptions on a day to day basis.  Not only can this be distracting and put an adverse skew on the balance of a portfolio; even more damaging is that a manger is likely to be given money when he least wants it – when markets are looking toppy when the retail investor often fears he is missing out and rushes in and conversely he is likely to be asked for money down at the bottom when everyone has given up all hope and wants out with what they have left; the point of capitulation. This is the one time a manager see bargains and can deploy funds and the very last time he wants or should raise cash.  And yet it happens over and over again.

Given their closed structure and with the discount as the regulator of supply and demand and the market as the mechanism managers can focus on investment not on raising cash or investing new money.


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