''Every Day is Day One at Amazon''

This is a famous quote attributed to the boss over at Amazon. The relevance form a portfolio construction perspective is that investors should at all times remain objective and focussed on the prize. Can we improve the probability of having a successful investment result? Are there decisions and strategies we can deploy to enable and support this? The active investment management industry would have us believe that success is a by-product of vigorous research, dynamic market engagement and the winner’s edge. Many more support the thesis that time is the only essential ingredient with moderate importance placed on the underlying asset allocation. Perhaps the truth is a combination of the two. Much has been written in academic journals about the pursuit and identification of alpha or outperformance of the market in layman’s terms. This alpha is usually associated through either optimal stock selection or enhanced market timing ability. In fact, the majority of the academic research investigating both the performance and [perhaps more importantly] the persistence of fund manager skill is unambiguous in its conclusion: active fund managers underperform the market. I can already imagine the roars of disapproval as fund managers flail around and point to the most recent period where active asset allocation did indeed deliver the alpha. The problem with this analysis however is that the sample period is not wide enough to deserve proper scientific scrutiny. We need to analyse sample periods that span decades if not generations. With this brief contextual introduction, we now turn to some common-place methods of capturing investment returns.

Timing & Time Horizon

Let’s dispel with the myths straight away. The likelihood that I will have the intuition to purchase at the absolute bottom of the market and sell at the peak of the highs is immeasurably minute. We can however construct a framework through which our idea generation flows through to our trade/ investment execution and we place the odds on our side. Having a healthy respect and appreciation for those odds is a useful starting point. The most basic question we ask our client relates to their investment time horizon. The shorter our time horizon is the lower the number of possible entry points and greater concentration around a specific price. A longer term investment horizon offers multiple opportunities to capture lower prices through market mispricing events arising from too much fear. This results in a solid average-in price particularly during choppy markets

Position sizing

Investors can increase/ decrease their investment holding or position based on how they perceive the trajectory of the asset over the timeframe. This is a crucial point. How do investors manipulate the size of their positions – the framework. The latter is just a collection of general data points or signals that either confirm or refute the broader investment idea. As mentioned earlier a shorter investment horizon forces investors to deploy their full arsenal around a specific entry point. We do not know whether this represents decent value or an over-bought sentiment driven entry level. Does it make more sense to hold some powder in reserve? A longer time-frame enables us the opportunity to purchase on the dips if our investment conviction is verified by the data signals in our framework.


The famous behavioural economist Daniel Kahneman and Amos Twerksy have written extensively about interesting biases including loss aversion and the endowment effect. Put simply, from an investment perspective we are motivated more by avoiding loss than making gains and we have innate loyalty to an existing investment that may prove counter-productive. The skill of investing is objective thought and discipline. We cannot separate sentiment from psychology. These two bedfellows are intrinsically linked. The challenge therefore is to build sentiment indicators into your framework. The most important challenge however is to determine what type of investor you are.


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