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11/02/20192 mins

Long-term investing in a nutshell

Did you know that tree cover in the Scottish Highlands was once so dense that it is said a red squirrel could travel from east coast to west, without once touching ground? Today, sadly, times are tougher for this native species. They have to grapple with and respond to new threats, such as the loss of their arboreal habitat and disease spread by their grey cousins.

An environment of insecurity – in which we evaluate new threats and respond – is something humans share with this well-loved animal. After ten years of growth, the fear of an economic slowdown has created a febrile milieu for global stocks, which are exhibiting increased volatility.

It’s easy to understand why investors respond by retreating to the safety of the crowd. Herding, or crowd behaviour, gives the illusion of safety. But it can also lead to unprofitable investment decisions: buying in to a stock at the worst possible time. This is when investors often make emotional investment decisions, driven by greed or fear.

As contrarian investors, we challenge the wisdom of the crowd – looking for the point at which fellow investors are at their most despondent. But we’re not merely looking for unloved stocks. It’s essential that we also see a catalyst for change. This can come in many forms: fresh management, a new strategy or business model, activist involvement or merger and acquisition activity.

It helps, of course, that we have time and patience on our side. As long-term investors, we’re not looking to make a quick buck. Instead, we’re interested in genuine improvement. Often (but not always), the stocks we invest in also pay a healthy dividend, giving us an income while we wait for the broader market to recognise the company’s merits. This approach has proven successful, and our dividend yield is one of the most attractive in the peer group. However, it should be remembered that dividends are not guaranteed and can fall as well as rise.

The benefits of the Trust

It goes without saying that there are myriad options available to people who wish to invest in equities. For SIPP investors, squirrelling away assets to enjoy a secure and comfortable retirement, a contrarian approach to investing offers a potential element for a diversified pension portfolio. Actively managed and independent, ours is a closed-ended vehicle that has served investors since 1887. Its structure allows us to make high-conviction, long-term investment decisions in the best interest of our shareholders.

In terms of fees, the Trust also has one of the lowest ongoing charges figure (OCF) of its peer group. Fees erode investors’ returns over time, so this is an important consideration. Diversification is also key to our approach. Consider the squirrel: they often make several nests (known as dreys) to bamboozle predators, and as a safeguard against damage. Within the Trust, we take a similar tack. We spread risk for our investors by creating a judiciously chosen mix of investments in which we have a strong conviction.

 

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.

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