Lengthening the Investment Time Horizon
Investors are increasingly making decisions based on short-term market trends due to the role of incentives, the media, financial reporting, and other decision-making biases. But there are opportunities for differentiated performance when investors hold securities for longer periods.
Investors are increasingly making decisions based on short-term market trends; this despite the fact that the average life expectancy has increased and retirement funds will likely have to be larger and last for longer periods of time. This behavior can be attributed to a number of different decision-making biases, including the role of incentives, the media and financial reporting, among others. A short-term market mindset opens up arbitrage opportunities for active investment managers with a longer time horizon and a focus on stock selection. Those who understand the need of today's retirees, and recognize the shift in demographic trends, are able to achieve differentiated performance by holding onto securities for longer periods and can capitalize on stocks that may be undervalued.
Authors: Michael Roberge, MFS Co-CEO, President and Chief Investment Officer; Joseph C. Flaherty, Jr., Chief Investment Risk Officer; Robert M. Almeida, Jr., MFS Institutional Portfolio Manager; Andrew C. Boyd, Institutional Portfolio Manager;