The main challenge in capturing the benefits of long-term investing is that the long-term is comprised of very many days. Being able to cope with the events, cycles, shocks and stories that form a lengthy time horizon is a formidable task. Potential long-term investments should not be considered solely on their prospective return and risk, but also our ability to endure and survive the inevitable fluctuations in performance. The gap that exists between short-term pressures and long-term objectives is so significant that I have often heard people comment that they would make different choices if they could ignore their investments for 10 or 20 years. But what if that were true? What if we could put our investments in a time capsule and not touch them for many years.* What would you do differently?

Let’s assume we have to make a number of investments or investment views now, and, once decided, we cannot do anything with them for ten years (I would have preferred longer, but in this investing world even this seems extreme). They must remain untouched until a decade from today.

Below are six investment views I would place in the said ten-year time capsule. Clearly these are all probabilistic judgements in which I have varying levels of confidence, but such nuance is no fun in a time capsule so I will present them as binary opinions. Here goes:

– Equities over bonds (MSCI ACWI over Bloomberg Global Aggregate Bond USD Hedged): This seems like an easy call, and I have certainly been conditioned to believe through my career that this is close to a slam dunk, but global equity valuations are not cheap and bond yields are much more attractive than they have been for some time. Despite this I would still favour equities.

– Small cap over large cap equities (MSCI World Small Cap over MSCI World): Moving into more controversial territory, it has been an unusually weak period for small caps versus large cap indices driven primarily by the ascendancy of a group of staggeringly successful mega caps. Perhaps this is a new paradigm (it is certainly not impossible), but I would rather lean on the side of history.

– Non-US developed over US Equities (MSCI EAFE over S&P 500): There are many reasons why the dominance of the US market may continue for another decade and they are hard to disregard in the midst of a prolonged spell of outperformance, but I still tend to believe that (extreme) valuations matter.  

– EM over developed equities (MSCI EM over MSCI World): Taking a ‘close your eyes’ view on emerging markets can seem pretty risky – what if something happens in China? – but these risks always feel more acute when an asset class is already underperforming.

– Value over Growth (MSCI ACWI Value over MSCI ACWI Growth): After a brief period of respite, growth stocks have resumed their crushing dominance over their much-maligned cheaper counterparts. I am inclined to think that this will not continue for another ten years. (These indices are not the perfect way of capturing value and growth, but will suffice for the purposes of this post).

– 60/40 over hedge funds (MSCI ACWI / Global Aggregate Bonds over HFRI 500 FWC): Despite equities looking historically rich (in aggregate), I would still favour a combination of them and bonds to outstrip a collection of expensive hedge funds attempting to do incredibly difficult things.

—
 
Now these views are in the time capsule, I will not return to them for ten years. If most of them prove correct I will write a piece about the power of long-term investment thinking, if most are wrong then I will assume nobody will remember I ever wrote this.

There are a couple of serious points stemming from this post. First, is that these types of views are generally only ever meaningful at extremes of valuation and performance. For the most part such marginal investment calls are nothing more than superfluous, unpredictable noise; we are usually far better off doing nothing. Second, if there is a chasm between your actual investment position and your time capsule views, it is important to understand what is causing it and at what cost.

—

* Recreating the magic of private equity.

# This post does absolutely not constitute investment advice!

—

My first book has been published. The Intelligent Fund Investor explores the beliefs and behaviours that lead investors astray, and shows how we can make better decisions. You can get a copy here (UK) or here (US).