Lessons Learned from Forty-Five Years in the Investment Industry


James Bernard, CFA, Managing Director, Fixed Income

I recently had a conversation with a long-time client and the discussion turned to mistakes investors have made and repeated over their investment careers (myself included). He asked what some of the mistakes were that I have witnessed during my 45+ year career investing and observing investors alike. Afterward, I thought I would share the highlights of our conversation, as many of the points are issues that we can probably all relate to from one point in our investing experience or another.

The first item we discussed is the tendency of some investors to hold excessive cash reserves or wait for a better buying opportunity to get in the market when it is cheaper. While dollar cost averaging or other disciplined approaches to walk cash reserves into the market is a time-proven approach, waiting for that meaningful correction to get funds invested has proven to be an elusive goal more often than not.

For example, if one defines a “good” opportunity as a hopefully temporary correction of, say, 10% or more, then the last 20 years has only provided a handful of “good” opportunities to get funds into the markets. These would be the dot-com meltdown of 2000-2001, the financial crisis of 2008-2009, the government shutdown and related issues in late 2018 and of course the beginning of the pandemic in 2020. I would argue that each of these periods involved significant stress for both the markets and for most investors; I have the gray hair to prove it! While prudently deploying funds during these periods would prove to be profitable, I would argue that many investors were actually more inclined to sell at these times, given the grave uncertainty the events created. So, sticking with a disciplined approach to deploying cash may be best in the long run.

Another general observation is that many investors tend to reduce equity exposure (often too much, in my opinion) to be more conservative, especially as they look through the lens of their retirement years. As we often remind investors, there is risk in not taking risk in a portfolio. The current environment, with interest rates at historical lows, does not, however, present a normal backdrop for this discussion, as being conservative in this market has unusually punitive results.

For investors who will likely consume a reasonably significant portion of their retirement funds during their retirement years, being more conservative is likely the right decision as a prudent investor. For others who will likely transfer a meaningful percent of their funds to family members or charitable bequests, maintaining a balanced portfolio with sufficient equity and alternative exposure, in many cases, is the preferred approach for longer-term time horizons. Certainly, many investors are of the mindset that they worked hard to accumulate their retirement funds and don’t want to see those funds eaten up in a bear market. This concern should be addressed during the risk assessment and financial/liquidity planning process when developing an asset allocation, rather than serving as a blanket statement that all investors need to become ultra conservative once they stop working.

A third observation I noted is how often we see individual investors (as opposed to institutional investors) significantly underweighted (often no exposure) in international equities, including both developed and emerging markets. Certainly, the last decade plus has seen poor relative results for many international equity markets, including above average volatility. When asked, the common response to why an investor has little or no international exposure is a lack of trust in many international markets, economies, etc. While these concerns are often well founded, limiting one’s investment universe to only the U.S., exposes an investor to less than 5% of the world’s population. As the U.S. economy continues to mature, many younger and more rapidly growing economies and markets may offer a prudent diversifier to an investor’s domestic stock allocation.

My final observation (though there are certainly many others to consider) relates to the area of fixed income and bond market investments. Since I spent most of my career managing bond portfolios, I have seen many approaches to fixed income allocations. As a general observation, I found many investors who, in the spirit of being conservative, wanted to primarily hold shorter maturity bonds since they offer better liquidity features (mature sooner) than intermediate or longer maturity bonds.

The other reason given over the years (and I realize today’s bond market is unique and we will hopefully normalize interest rates in coming years) is that rates are not high enough to invest more than a few years given the lack of yield. Investors taking this approach over the last 40 years have earned significantly less income than if they had just stuck with a traditional bond ladder extending out 7-10 years. Of course, if an investor has regular liquidity needs or could benefit from the diversification of a diversified fund, owning bond mutual funds or ETFs is a prudent approach for investors in those circumstances.

Forty-five years in the business will teach you a few things. As a firm, Ancora is always striving to bring this collective wisdom to you, as your partner on your financial and life journey.

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