Sentimental investor died in crash of ’08 – BJM PCS
The sentimental investor – once a frequently encountered species and equity stalwart of the past – has all but died out following the market crash of 2008.
That’s the considered view of Barnard Jacobs Mellet Private Client Services (BJM PCS), a specialist provider of wealth management services to high net worth individuals and a company that continues to grow its client-base despite the challenges faced by the wider financial services industry.
The firm has closely scrutinised investment and advisory services trends since the major market reversals of the last year and says the demise of sentimental investing is one of the starkest ‘Before’ and ‘After’ developments.
The sentimental value attached to a certain share or sector of the economy was frequently quoted when some investors rejected advice to reduce equity exposure or adopt a more diversified approach to their portfolio.
Tony Barrett, head of wealth management at BJM PCS, notes: “Previously, an adviser applying considered research-based disciplines to balanced portfolio allocations, might encounter quite subjective objections to specific recommendations.
“For example, an investor might say ‘I can’t sell those shares; my late father bequeathed them to me 20 years ago and they’ve stood me in good stead over all these years’. Investors such as these are the one’s who have suffered the brunt of the correction, with their portfolios more often than not taking a huge fall.”
“The tragedy is that in some cases considerable value was lost before the lessons of sensible profit-taking and prudent diversification were fully absorbed,” adds Barrett.
The potential for loss was illustrated most dramatically in the resource sector of the JSE – ‘home’ of some long-established blue-chip companies that held a hallowed place in the portfolios of many sentimental investors.
By the end of 2008, resources had fallen more than 60% from their highs earlier in the year, with some of the more speculative counters have even more dramatic falls. Between May 2008 and April 2009, some individual shares had lost more than 80% of their value.
“Emotion is understandable, especially when legacy assets are under review,” says Barrett. “But part of the value added by the professional planner is the ability to offer dispassionate objective advice based on intense scrutiny of both market dynamics and the needs of the individual. At BJM, with our strong research base, proven process and client aligned culture, we view ourselves as being in the ideal position to add value to an investor’s strategy and investment portfolio.
“In the long run, the demise of emotional investing is positive as effective portfolio strategy is driven by considered judgment rather than sentimental attachments.”
