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-Long-termism-
In the past, we have been emphasizing holding for the long term and being friends of time. We seem to equate long-term holding with long-termism. Therefore, before we can understand long-termism, we can first understand long-term holding. The benefits of long-term holding are obvious, dilute short-term volatility and enjoy the long-term benefits of the capital market. But the process has not been easy.
First, the capital market may face a black swan shock, or a bear market impact, and the drawdown of related assets is often more than 20%, or even 50%.
Second, some assets may not make money for a long time, or even lose money, and it is difficult to completely judge and avoid this type of asset in advance.
In either the first or the second case, a long-held plan may be interrupted. In the first case, the result may end up being good. But in the second case, the result of resistance can be imagined.
Both of these situations are tests for investors who hold for a long time. The amount of time that the asset does not make money exceeds the limit of the investor's patience, and the investor's patience and confidence are lost and eventually the long-term holding plan is abandoned. The second scenario reflects a worse scenario, where the asset itself is misunderstood. This asset is an asset that is difficult to make money for a long time, or even lose money. In the face of the above tests, long-term holding is questioned, and then long-termism is questioned. The performance of A-shares since 2021 is playing out such a story.
First, the long-term holding strategy is facing unprecedented challenges
In the past period, A-share fund investors have faced unprecedented challenges.
1. Facing the test of a relatively long-term bear market
Table 1 Since February 2021, A-share investors have faced a relatively long bear market test
Source: Wind
As shown in the table above, taking the CSI 300 Index as an example, since its peak in February 2021, it has been declining for nearly three years, with a downward range of more than 40%. Both the drawdown space and the duration of the drawdown exceeded the psychological expectations of most investors. Investors who originally planned to hold A-share related funds for a long time faced a huge psychological test.
2. Facing deep floating losses of closed-end funds
For a long time, it has been widely believed in the industry that investing in funds with a closed period (including holding period funds, fixed opening funds, etc.) is an important means to solve the frequent trading of investors. Investors are also more likely to recognize this perception. So from 2019 onwards, the issuance of holding period funds began to increase.
Figure 1 Issuance of holding period funds
Image source: Morningstar Fund Research.
Looking back, as of December 24, 2023, the belief that buying such a holding period fund is equivalent to making money, and buying a three-year closed-end fund is equivalent to making absolute money, has been broken.
Figure 2 Floating losses of funds issued in 2021 with a holding period of more than 12 months
Note: Statistics as of December 24, 2023. Funds with a holding period of more than 12 months include all types of funds, and the data comes from Wind
As shown in Figure 2, as of December 24, 2023, funds issued in 2021 with a holding period of more than 12 months are facing a large floating loss, with a floating loss ratio of more than 80%. Among them, 48.83% have a floating loss of more than 10%, more than 38% have a floating loss of more than 20%, and about 10% of the funds have a floating loss of more than 40%.
Under this round of bear market, the belief that "the probability of making money in the holding period fund is higher, and the probability of making money in three years is higher" has been broken.
3. Faced with the low excess return of the fundamental stock selection strategy of public equity funds, the bear market that began in early 2021 has also faced new challenges. Some star funds have seen large drawdowns. Investors have lost their trust in star funds and even fundamental stock selection funds, that is, as they are often called, subjective stock selection funds. This is related to the fact that the fund has generally lost money, even for three consecutive years. According to statistics, in 2023, the excess of public equity funds will fall to a record low and reach a loss position of -10%.
Among the fund managers who choose stocks fundamentally, there is also a group of star funds whose performance is worth paying attention to. Even if we do not consider the impact of investors' trading behaviors such as chasing up and down, it is difficult to say that we are satisfied with the net value performance of the fund alone. Assuming that a fund manager with a management scale of more than 10 billion is defined as a star fund manager. The net worth performance of tens of billions of fund managers in the past two years is also worrying.
Figure 3 The rolling three-year annualized return of the equity-biased fund index fell to a low level
Source: Wind. The statistical period is from January 1, 2011 to December 3, 2023
To sum up, after this round of bear market, A-share investors have become more and more skeptical about long-term holding, which is reflected in two aspects:
(1) Belief in the "long-holding" methodology
(2) Belief in star fund managers
If it is not broken, it will not stand, the old faith will be broken, and the new faith will appear. Let's think about what is the right long-termism.
2. Long-termism from the perspective of wealth management
What exactly is long-termism?
Once we look to the long term, what are we thinking? Different perspectives have different implications. Combined with our past experience, we have come to realize that from the perspective of wealth management, the real long-termism is based on the long-termism of investors, rather than being superstitious about star fund managers, nor obsessed with market predictions, or even beliefs, but to adopt the mode of thinking of the underdog, go through the cycle, and use appropriate products/solutions to help investors obtain long-term desirable returns.
First of all, the pursuit of long-term desirable returns for investors is the direction and goal of long-termism. Start with the end in mind. Keep our eyes on this goal, constantly calibrating our sense of direction and rhythm. We do not believe in star fund managers, do not believe in a certain type of market, a certain type of assets, and constantly calibrate the strategies, products and programs we choose to give investors the goal of pursuing long-term desirable returns.
Second, we need to continuously improve the ability of investors' household wealth to move through cycles. This includes not only the requirements of cash flow planning for family wealth, but also the consideration of investors' psychological affordability. For family wealth, the underlying need may lie in not taking too much risk. From a long-term perspective, the preservation and appreciation of wealth on a relatively stable basis is the second meaning of long-termism from the perspective of wealth management.
Finally, wealth management is dealing with investors, investors are also human beings, and people have emotional fluctuations, especially in the investment process, they are easily disturbed by capital market fluctuations, and even extreme emotions such as greed and fear. Therefore, how to make investors relatively peaceful and emotionally stable in the process of receiving wealth management services, and reduce greed and fear is also an important part of long-termism from the perspective of wealth management. On the road of wealth management, there may only be a long-term doctrine, that is, after the baptism of the cycle, the wealth management institutions and financial planners will still accompany the customers for a long time.
High-quality, long-term companionship is essential. For the majority of investors, they have not learned the basic knowledge of finance, nor have they been exposed to too many financial services, so they are easy to be deceived. Money never sleeps. There is never a shortage of temptations to get involved in the capital markets, especially the temptation to get rich, and the temptation of Ponzi schemes. The temptation of guaranteed principal and interest and guaranteed income also attracts a large number of investors. How to help investors prevent financial fraud and avoid risks should be an important part of the company.
Helping investors correctly understand and cope with the volatility of the capital market is also an important mission of the company. As long as you are involved in the capital market, the topics that you can't do without are uncertainty and volatility. Even if we do a better job on the basis of risk prevention, it is difficult to prevent some accidents, black swans, etc. When the market fluctuates violently, wealth management institutions should dare to speak out, dare to reach investors, provide investors with positive emotional value, and convey a positive and optimistic attitude. Even at the end of the most difficult bear market, we have an obligation to remind investors that they should maintain a balance between work, investment and life, and in the end, investment and financial management are only part of life.
The long-term approach of wealth management institutions is based on investors, and the starting point is to pursue long-term desirable returns for investors. Specifically, it is to enhance the ability of investors' family wealth to go through the cycle, and strive to ensure that investors have a stable mentality in the process of wealth preservation and appreciation. This is the long-termism we want to achieve. In this process, for wealth management institutions, it is necessary to focus on the capacity building of long-term good finance and the improvement of long-term high-quality professional accompaniment.
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