"If you're right 60% of the time, you’re the greatest investor the world has ever seen"

This article is sponsored by Beneva.

Andrew Gardiner knows that the most successful investor clients are the ones who rarely look at their accounts. It sounds almost counterintuitive, but the Senior Regional Sales Director at Beneva argues that human behavioural impulses result in buying high and selling low when investors see red in their statements. It comes down, in large part, to fear.

Fear of losses pushes investors to sell holdings when they see them lose value. Fear of missing out pulls investors towards securities enjoying short-term gains. Often that means they fail to participate in recoveries or gain exposure to expensive securities right before those securities take a dive. In short, they’re buying high and selling low.

Its in this area that he calls “investment monitoring” where Gardiner believes advisors can truly demonstrate their value. Armed with stacks of historic performance data and behavioural insights, Gardiner makes a firm case for a well-advised approach built on long-term commitment, regular rebalancing, and knowledge of the client.

“Ultimately, your clients’ success in investing, it really comes down to their ability not to panic and stay disciplined. And that's what humans, me included, have a problem with,” Gardiner says. “There’s no shortage of outside influences that can make people super greedy or super fearful. And both positions do not produce good outcomes. If they have a plan that they’re rooted in, something that makes sense for them emotionally and makes sense for them, in terms of their goals, they’re okay.”

That’s why advisors need to practice thoughtful investment monitoring, in Gardiner’s view, because if they don’t their clients will. Investment monitoring means understanding and communicating movements in a portfolio and on markets with appropriate context and historical data. Advisors who can talk their clients off the ledge, explaining why they hold what they hold, are the advisors who can demonstrate their value most clearly over the long run.

Within that monitoring is a commitment to periodic rebalances. Markets shift and opportunities present themselves, but taking a more systematic approach has historically been a more effective way to capture them. Gardiner prefers to use a hockey analogy, with each aspect of the portfolio playing a role. The whole team can’t just go hard at the opposing goal. Some of the portfolio needs to play defense, or step in when other parts of the team don’t succeed.

As advisors encourage more successful investment behaviour from their clients, Gardiner cites the time trade offs that come with a client doing their own investment monitoring. Clients might spend house poring over investment news, reading articles, and hearing predictions about the latest stocks. He argues that they would likely spend that time more lucratively in their professions while their advisors stay focused on the movement in their accounts.

Advisors need to earn that trust, however, through a deep understanding of their clients. That work begins with plenty of questions through the KYC process. Risk tolerance and time horizons are table stakes at this point, and a deep understanding of goals and fears can help inform investment decisions and an advisors communication around those decisions. Throughout that process, advisors need to prepare their clients for the issues that might arise and try to grasp how they might react to a significant market downturn.

Diversification, therefore, is a watchword for investment monitoring. Gardiner explains that a client’s impulse to hold only dividend stocks, for example, would have seen them lose out against higher growth companies for the past decade. An appropriately diversified portfolio can offer better broad exposure to various market trends and changes. If advisors can explain that to their clients, they can keep them committed to a straightforward plan and ensure that they aren’t trying to time the market. As Gardiner explains, history has shown that stock pickers rarely win against diversified investors.

“If you’re right on your investment choices 60% of the time, you’re the greatest investor the world has ever seen. If you’re batting 600, then you’re crushing everybody who makes investments professionally,” Gardiner says. “The likelihood of someone doing that on their own, monitoring all the time, picking and choosing when to get in and out, and succeeding is very low.”