10 years have elapsed since the internet crisis. The internet’s heavy influence on the world of finance and particularly on the quotation and tracking of listed securities has in recent years transformed our approach to investing.
While most of us were previously "small-time speculators" - with only institutions taking a long-term approach - the wide availability of instant (often unverifiable) information, the development of real-time trading platforms and the creation of fully-automated market trading rooms have combined to transform radically our relationship with the stock market. It is now much more about long-term investment and taking a strategic approach. This is because, once volatility is taken into account, we are not able/willing to accept an excessively sharp fall in prices which risks causing our clients to lose confidence.
At the same time, as we seek to improve the performance of our portfolios, we make extensive use of the hedging mechanisms at our disposal (options, swaps, trackers, etc), as well as ones that allow a coupon (security loan) to be collected, without wishing to understand that they require sophisticated (and therefore short term) trading techniques in order to be effective.
Regulators have for their part unwittingly accentuated this pressure by forcing all investors to value their positions at the market price regardless of the holding period. This also leads them to adopt these short-term behaviours, which are today acting as the real market regulators.
We are thus collectively destroying the very foundation of our business: trust. Both investors and companies need trust to implement strategies which will usually bear fruit only in 5 or even 10 years’ time. Trust is at the heart of our financial system and we play the role of sorcerer's apprentice (to hedge our risk) by using these short-term trading instruments.
At the dawn of a new year in 2011, is a rebound possible and are we capable of becoming long-term investors once again?
By becoming long-term shareholders once again, performing our role as shareholders by supporting executives and their boards of directors in implementing long-term growth strategies - in short, no longer acting like "traders" - we can achieve these aims together if we want to.
We convey our very best wishes for 2011 and hope you become a long-term investor once again to help restore trust in the financial system.