Frequency & Wavelength
visceral vs. cerebral
During a bull-market, everybody’s investment horizon tends to infinity. All you need to do is buy & hold (or, as coiners call it, HODL - Hold On to your Dear Life) and everything will work out just fine. However, a 50% drawdown has a way of shaking out the strongest of hands. Investment horizon shrinks from years to days and price charts get frantically refreshed every five minutes.
We had written about it back in 2016: Pain is proportional to Frequency of Observations. The frequency with which you measure your portfolio should match your thesis’s original holding period (wavelength). For example, if you planned on staying invested in an index, fund or strategy for a 10 year period, then ideally, you should only look at your portfolio once a year, at tax time.
All investments have an ideal holding period - a duration long enough for the “average” return to become “your” return. This is a very left-brain, cerebral part of designing a portfolio. But if you sample the portfolio at a higher frequency, then your reaction to the inevitable ups and downs is going to be highly visceral.
This is where wrappers that have long holding periods, redemption gates and infrequent NAV disclosures can help even if they end up barely tracking their benchmarks.
Holding period aside, no amount of discipline can help a flawed investment thesis.
Some strategies are good trades, while some are good investments. Know the difference and manage risks that are specific to each.
Markets this Week
It was a bad week for equity markets. But all said and done, SPY is only ~8% from ATH, QQQ 13%, and INDA 14%. The real shellacking was in the “profitless tech” basket, exemplified by the ~54% drawdown in ARKK, and crypto, with Bitcoin down ~47%.
Bonds and credit have been selling off as well.
