Shall I compare thee to a summer’s day?
Thou art more lovely and more temperate.
Rough winds do shake the darling buds of May,
And summer’s lease hath all too short a date.
Sonnet 18, William Shakespeare
Comparisons of investment approaches are seldom straightforward, with the season and the economic climate having a habit of influencing feelings and tempting even the most diligent of decision makers to jump into rough waters. And yet, many commentators trip over themselves to express strong opinions to accompany regular performance comparisons over a relatively short and summery time frame.
Some of those sharing their wisdom are probably not old enough to remember Black Monday in October 1987, but many should remember the gradual decline in markets between 2000 and 2002, and most should remember 2008.
So, it’s a little surprising to read some of the enthusiastic judgements drawn from comparisons made in the grip of a stock market stampede which has made the bulls of Pamplona look lethargic. Such comparisons are regularly presented to employers as evidence on which to base their decisions.
Those decisions will have a lasting impact on their staff and are likely to determine when they might be able to afford to stop working, and the quality of their retirement.
Investment approaches are not easy to compare. That’s why investment consultants are important. At one end of the spectrum are sophisticated strategies that benefit from continuous oversight and regular adjustments, while at the other are investment mandates that are bought cheaply then largely ignored.
The latter have delivered attractive returns over the past few years while stock markets have continued to enjoy a very long summer. But what happens when summer’s lease reaches its sell-by date? As the investment world struggles with that one, how can employers possibly be expected to answer it.
There is no simple answer without looking back over a much longer period than we currently have available. Investment advice, like the funds that are currently in season will change, as they have changed regularly over the past thirty years. Will the benefit of hindsight see those who have been overly enthusiastic blown away along with the darling buds of May? Who can say.
The only thing we can be sure of is that winter follows summer.
Rob Booth, Director of Investment & Product Development, NOW: Pensions
