It’s About Time

Q4 | December 2019

Time.

Topic: Human Interest

John C.A. Stevenson CFA

December 18, 2019

Image used with permission: iStock/artisteer


Print & Share

Print

It’s About Time

Q4 | December 2019

Over the last 25 years, we have written frequently about time. In fact, in 2010, our annual client presentation carried the same title as this article: “It’s About Time”. Typically, our message has been about staying focused on the long term and avoiding having one’s emotions roiled by short-term crises in the daily news grind. Several weeks ago, an article in The Globe and Mail touched on this topic again in a way that resonated strongly.

The Globe and Mail article quoted John Huber from a firm called Saber Capital Management in Raleigh, North Carolina.(1) Mr. Huber observed that potential clients often ask him what his edge, or advantage, is over other managers. They are almost always looking for some kind of informational edge or analytical insight that others don’t have, and the market is not aware of. The problem is that such advantages don’t exist any more. There is almost limitless financial and corporate information available to any professional investor, and battalions of brilliant analysts pouring over the data to develop special insights. Mr. Huber believes that every time he has seen someone develop a view they believe is unique, it is almost always understood by many other market participants.

The only sustainable edge, according to Mr. Huber, is to have a time horizon that is different from others. Specifically, it is to have a time horizon that is longer than others. Much of the investment industry is focused on generating short-term results. This is driven by the human desire to belong to a crowd – to invest in the things that are currently popular. It is driven by the desire for instant gratification. And it is driven by investment consultants in the institutional investment world who focus intently on what happens each quarter and think of long-term results as what happened in the last year. In fact, there are so many people, with so many skills, focused on the short term, it is nearly impossible to do better than average for a sustained period. But this obsession with the short term actually creates opportunities for those focused on a longer time horizon. To capture these opportunities one needs a contrarian mindset and to avoid the popular themes of the day, but it is the only approach that can reasonably be expected to offer better returns than average over time.

The Globe and Mail article also was published during the period when we were preparing our annual client presentation on artificial intelligence (“AI”). At each of our three presentations a client asked about how AI was likely to affect the investment management industry. While we recap our answer to this question more fully elsewhere in this edition of Nexus Notes, an important element of the answer is this same idea of time. Just as lots of bright young analysts work feverishly to predict corporate earnings for the next quarter, so, too, is AI mostly focused on finding a short-term edge. So far, the long term remains the domain of investors like Nexus who apply judgement and patience to the information available to achieve something a little different: a superior long-term result, rather than the prediction of a short-term outcome. Of course, future generations of AI may change the investment industry at its core. But today, a human with good judgement and a long time horizon can still be successful.

The concept of time in the investment process also reminds me of the key message that my partner, Devin Crago, relayed to some of our younger clients, and prospective clients, a few years ago. He also published a blog earlier this year, reminding us how valuable time is as an asset. As Albert Einstein famously said, “Compound interest is the 8th wonder of the world.” The wonder is revealed in a very simple example Devin presented. A 25-year-old who saves and invests $7,450 per year and earns 5% per year on the savings will amass $1 million by the time he or she is 65. If the savings starts at age 35 rather than 25, only $550,000 is saved. Compounding this saving over 30 years rather than 40 years almost doubles the nest egg. Time is an asset that is valuable to someone of my age, but exponentially more valuable to my children. One of the most important things we can teach the younger generation is to understand the valuable asset that they own. After declaring compound interest the 8th wonder of the world, Einstein went on to say, “He who understands it, earns it. He who doesn’t, pays it.”

The good news implied by Mr. Huber’s comment is that you don’t actually have to be a genius to achieve investment success. There are many geniuses in the investment world who are unsuccessful. You just have to understand that the most powerful tool in an investor’s arsenal is not special information, or proprietary analysis… it is time. Don’t waste it, harness it and enjoy the 8th wonder of the world.

(1) Ian McGugan,  The Globe and Mail, October 24, 2019.

More Like This...

See another CRM2 blog post that may be of interest to you.

No posts found.

More Like This...

See another Foundations & Endowments blog post that may be of interest to you.

That Giving Feeling

Topic:
Foundations & Endowments, Tax Planning
Excerpt:
Summer is now a distant memory. In fact, a radio announcer declared only 77 days until Christmas. Ugh. It is usually in the last quarter of the year

More Like This...

See another Human Interest blog post that may be of interest to you.

COVID: An Uneven – and Unequal – Recovery

Topic:
Human Interest
Excerpt:
Canadians have had enough of the lockdown. Here we are 18 months after you first heard of the then mysterious Wuhan flu. Today, but for any curve ball

More Like This...

See another Inside Nexus blog post that may be of interest to you.

Nexus: Behind the Scenes

Topic:
Inside Nexus
Excerpt:
Over the years, readers of the Nexus blog have been treated to various posts from my colleagues. On the other hand, much like my role at Nexus, I have

More Like This...

See another Investments blog post that may be of interest to you.

The Burden of Experience in a Modern World

Topic:
Investments
Excerpt:
Those of us who started in the industry decades ago have witnessed enormous change. When I finished university in 1982, Japan was the world’s

More Like This...

See another Pearls of Wisdom blog post that may be of interest to you.

“Work, Work, Work, Work, Work, Work”

Topic:
Pearls of Wisdom
Excerpt:
This has been a busy year. I’ve had lots happening on the home front (a wedding!) and lots going on at the office (too long to list!) Managing work

More Like This...

See another Tax Planning blog post that may be of interest to you.

The Great Transition – A Tax Efficient Withdrawal Strategy

Topic:
Tax Planning
Excerpt:
The change from “saver” to “spender” is what I call the great retirement transition. Figuring out how to draw on your retirement savings to meet your

More Like This...

See another Wealth Planning blog post that may be of interest to you.

Living to 100… Is 100 the New 80?

Topic:
Wealth Planning
Excerpt:
It’s a common saying that there are two certainties in life, death and taxes. While we have a pretty good idea when we get taxed, which feels like all

On a Side Note…

See another CRM2 Nexus Notes Quarterly article that may be of interest to you.

No posts found.

On a Side Note…

See another Foundations & Endowments Nexus Notes Quarterly article that may be of interest to you.

No posts found.

On a Side Note…

See another Human Interest Nexus Notes Quarterly article that may be of interest to you.

Worth 1,000 Words

Topic:
Human Interest
Excerpt:
A little humour makes the world a better place.

On a Side Note…

See another Inside Nexus Nexus Notes Quarterly article that may be of interest to you.

From The Editor: Summer Vacation

Topic:
Inside Nexus
Excerpt:
Summertime and vacations go hand in hand. The season is linked with feelings of relaxation and recreation. As kids, we saw the arrival of summer as

On a Side Note…

See another Investments Nexus Notes Quarterly article that may be of interest to you.

Nexus and the ESG Integration Approach

Topic:
Investments
Excerpt:
At Nexus, we think Environmental, Social and Corporate Governance (ESG) considerations are a helpful input to our investment decision-making process.

On a Side Note…

See another Pearls of Wisdom Nexus Notes Quarterly article that may be of interest to you.

A Table for None, Please; Working From Home on the Rise

Topic:
Pearls of Wisdom
Excerpt:
Reading is one of the principal occupations in our profession. As we digest a wide range of material, interesting ideas and surprising facts – some

On a Side Note…

See another Tax Planning Nexus Notes Quarterly article that may be of interest to you.

The Great Transition – A Tax Efficient Withdrawal Strategy

Topic:
Tax Planning
Excerpt:
The change from “saver” to “spender” is what I call the great retirement transition. Figuring out how to draw on your retirement savings to meet your

On a Side Note…

See another Wealth Planning Nexus Notes Quarterly article that may be of interest to you.

Living to 100… Is 100 the New 80?

Topic:
Wealth Planning
Excerpt:
It’s a common saying that there are two certainties in life, death and taxes. While we have a pretty good idea when we get taxed, which feels like all