Long Term Investing Steadies the Course

Blog entry Jack Ehnes

A recent article in the Los Angeles Times says anxious investors nearing retirement are day trading with their life savings. While one can sympathize with the anxiety and desperation felt by those individuals, it doesn’t take an expert to realize this type of investment strategy comes with considerable risks.

The article highlights outstanding concerns in the market today. It’s the notion that anyone can fulfill their desire for immediate results with short-term profits at any risk. This notion however, does not factor in the eventual long-term consequences of potentially losing it all.

Using CalSTRS as an example, take this fiscal year’s returns of 1.8 percent and compare them to last year’s 23.1 percent. No doubt this reflects a volatile market. If CalSTRS were to act the same as a panicked investor, can you imagine the tremendous impact this would have on the fund’s value?

As of June 30, 2012, the CalSTRS investment portfolio holdings consist largely of 49.8 percent in U.S. and non-U.S. stocks, or global equity; 18.3 percent in fixed income; 15.0 percent in private equity; and 14.5 percent in real estate. CalSTRS has a portfolio valued at $150.6 billion as of June 30, 2012, is the largest teacher pension fund in the nation and is the eleventh largest public pension fund in the world.

Even in the best of times, the stock market is unpredictable, which is why CalSTRS advances the practice of long-term value creation. This long-term integration of environmental, social and corporate governance, or ESG principles, into our core business practices provides appropriate consideration of these issues. It is an essential part of delivering risk-adjusted returns.

Our long-term investment strategy also practices patience and dedication in the market. It involves dialogue and engagement with the companies in which we invest. This perspective considers 30-year horizons and focuses upon building investment and reinvestment values over time. Most importantly it harnesses the strength of pooled, steady contributions managed by financial professionals.

If you compare the rate of our investment returns over the past three years, which is 12 percent, or the past 20 years, which is 7.5 percent, you begin to understand how a long-term perspective guides healthy decision making. It considers time in the market as more successful than timing of the market. It is based on historical, realistic investment projections, a diversified investment strategy and assumes market fluctuations will occur.

A quote in the Los Angeles Times article said it best, “Experts sympathize with investor frustrations but predict that this type of [day] trading will backfire for most.”


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