Destructive Investment Behaviors Lower Returns
May 20, 2008
PHILADELPHIA - May 20, 2008 - Most investors engage in destructive investment behaviors that decrease their long-term returns, according to Jonathan J. Hirtle, Chief Executive Officer of Hirtle, Callaghan & Co., one of America's fastest-growing investment service firms and the nation's leading Chief Investment Officer organization.
The four most dangerous words in investing, according to Hirtle, are: "It's different this time."
"Of course, it's always just different enough to mislead investors and convince them that fundamentals no longer apply. They always apply," Hirtle said. Twenty years ago, Hirtle Callaghan pioneered the concept of the outsourced chief investment officer and today provides that service to family groups, foundations, endowments, and pension funds across America.
According to Hirtle, some destructive investor behaviors include:
-- Confusing investing with trading or speculating - "Investing is entirely about acquiring future cash flows at the most attractive rate. Everything else is noise. Investors should regard time-tested truths, about price-to-cash flow and regression to a mean, the way engineers regard Newton's Laws," said Hirtle. "Although every investment scenario is different, the true fundamentals are irrefutable."
-- Projecting recent trends - "Just as the past performance of an investment is not a certain predictor of future returns, recent trends will not necessarily continue and investors should resist the temptation to buy more of what worked (or continue avoiding what didn't work) last year," said Hirtle.
-- Ascribing cause to random events - "Investors often conjure up trends and profound meaning from completely random events. Ascribing cause to random events encourages investors to gaze enviously backwards at those who benefited from the random event, then work vigorously to position themselves to benefit from the next random event, which is impossible, by definition."
-- Making decisions based on rules-of-thumb (rather than probabilities) - "The most commonly used rules-of-thumb are the ones that incorporate oil prices, interest rates, dollar projections, and earnings estimates. These ‘econometric models' have demonstrated no consistent information value to investors, yet they continue to be used. Without a significant ‘coefficient of information,' econometric models are no better than any other rule of thumb."
-- Relating economic news to stock market performance. "Economic data lags while equity markets anticipate. There is no meaningful relationship between a particular year's economic performance and the same year's stock market performance. The stock market can rise while we are the middle of a recession."
About Hirtle, Callaghan & Co.
With over $16 billion under direct supervision, and recognized as one of the Top 50 Wealth Managers, Hirtle Callaghan has become one of America's fastest growing investment firms. Known as "Wall Street idealists" for combining performance intensity with a genuine fiduciary ethos, Hirtle Callaghan Chief Investment Officers deliver a unique, top-down approach to asset management that emphasizes the significance of strategy and risk management at every step of the investment process.
Now in its 20th year, Hirtle Callaghan sets a higher standard of service to the investment market by offering complete objectivity, as well as the insight and discipline of a professional Chief Investment Officer, supported by a fully staffed investment department - an approach previously available to only the largest, multi-billion dollar family groups and institutions.
For more information, visit www.hirtlecallaghan.com.
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