IFP Conference 2011 – Nick Murray

by Martin Vaughan on 15 October 2011

In one of the earlier posts I said that one of the highlights of this year’s conference was Nick Murray who gave an enlightening and entertaining key note speech about investing and in particular Behavioural Finance.

The content of his presentation was summed up extremely well by Andy Jervis of Chesterton House in a news letter he sent to all his clients. Andy’s newsletter summed up Nick’s presentnation far better than I could have done and also shows a practitioner’s view.

The newsletter is reproduced below (a big Thank You to Andy, Richard and all the team at Chesterton House for allowing us to reprint this here).

Andy is a leading Bacharach practitioner and you can find out more about him and his practice here.

Andy’s newsletter…..

This week my colleagues and I attended the Annual Conference of the Institute of Financial Planning at the Celtic Manor in Newport, and we learned some valuable information.

You may think that, at a time of lurid newspaper headlines about the dire state of the world economy and the markets that feed them, this would be a rather downbeat and pessimistic affair. On the contrary, in reality there was not only an air of calm professional composure but also a sense of real energy and enthusiasm for helping people to properly plan, prepare and implement their financial futures. The Institute, focusing as it does on professional qualifications, financial planning expertise and skilled practical application, seemed like a body whose time has come.

Undoubtedly the highlight of the three-day conference was a talk by renowned American commentator, Nick Murray. Nick compared the current financial crises with repeated similar events throughout history, and reminded everyone that, during his (admittedly long) lifetime the value of equity markets has risen around 100 fold, without taking into account the substantial dividend income that has been generated over that time.

Nick forcefully pointed out, however, that most investors never receive these returns. That’s because they invariably view equity markets as short-term instruments, trying to time their entry and exit to suit changing conditions, and destroying their long-term returns in the process. Nick went on to explain three fundamental principles and three practices that, in his view, lead to long-term investment success. As they very closely reflect our own philosophy we are delighted to repeat them here.

Basic Principles

The first and most important principle is faith in the future. The simple fact is that, despite the inevitable downs that occur in all markets whether they be stocks, bonds or bananas, the price of all these items continues their inexorable rise over time. The basic laws of economics dictate that this must be the case, and this fundamental belief is essential to keep sight of through thick and thin.

The second principle is patience. Frequently it’s hard to hang on to your faith in the teeth of the raging economic storms that come and go from time to time. Yet hang on you must if you are to feel the long-term benefits from your strategy. Capitulating when everything looks blackest is almost always the worst possible time to do so.

The third principle is discipline. Not only must you be prepared to wait for your faith to be rewarded, but you must continue to do the things that are required, regularly and consistently. It’s in this area that working with an adviser can be a real benefit, helping to keep you on the straight and narrow and not lose sight of your goals and your plan.

Real life practices

Supporting these principles are three specific practices.

Firstly, you need to choose an appropriate asset allocation. Having the right mix of equities, bonds, property and cash is crucial to your long-term returns, and the nature of the mix is something that shouldn’t be varied without extremely good reason. It’s likely that, unless your time horizon is particularly short, equities will be the major component because that’s where the long-term returns have consistently come from. Nick pointed out that a couple retiring at age 62 have a joint life expectancy of 30 years, and if you’re going to maintain the value of your money over that sort of time period it is vital that you invest appropriately.

The second practice is diversification. This means spreading money into a wide range of investments to reduce the risk of loss. As Nick put it, you’ll never have so much money in any one stock that you will make a killing in it, but neither will you have so much money in any one stock that you will be killed by it. Protecting against losses is the key to long-term investment success.

Third and last is rebalancing. This means that you need to periodically readjust your portfolio to reflect the asset allocation that you started out with. Doing this forces you to do what most investors realise they should do but rarely achieve, namely to buy low and sell high. Doing this consistently over time adds value to your investments and helps to ensure that they don’t get so out of kilter that they’ll be severely damaged by a financial storm.

Getting Results

These principles and practices are ones that we’ve followed for many years, and if you’re one of our clients we think you’ll agree that the results speak for themselves. Following this type of plan means that, far from panicking when markets can’t make their mind up what to do as at present, you too will be exhibiting an air of calm professional composure like your adviser.

If you want to know more about our process, just ask!


Andy Jervis

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