in your interest
long-term gains
16
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THE INVESTOR
broadenyour
horizons
With the Prince ofWales entering the debate over short-term
investing, we examine the benefits of a long-term approach
By Heather Farmbrough
T
here is general agreement among the
investment industry that a long-term
approach to investing offers the best
rewards.Yet the pressure on fund managers
to outperform on a yearly, six-monthly, or
quarterly basis is growing; pressure that makes it very hard
for them to avoid short-term decisions.
The Prince of Wales recently entered the debate with
a warning to the National Association of Pension Funds
(NAPF) conference that the current focus on short-term
investing was‘unfit for purpose’. He also cited‘mounting
evidence’ from Harvard and London Business Schools
showing that businesses that are willing to improve their
approach to environmental and social challenges were
more likely to deliver long-term returns.
His sentiments chimed with those of professor John
Kay, whose
Review of UK Equity Markets and Long-Term
Decision-Making
was commissioned by the government
and published in July 2012.
Kay found that over-reliance on the short term, both
in terms of company earnings and share performance,
has been largely destructive. Companies that are
concerned about their share price tend to underinvest in
the underlying business. Long-term strategic planning
is sacrificed to the goal of maintaining the share price.
The historic function of equity markets – to enable
Over-reliance on the
short termhas been
largely destructive
