![]() If two assets with the same long-term return and the same volatility are on offer, a portfolio with both of these assets will have the same return but likely with lower volatility – the only free lunch in investing.Īttempts to time the market without a diversified portfolio as an anchor often result in oversized, risky bets on very specific market outcomes. A diversified portfolio is more efficient than single asset classes. Taking a long-term view and remaining invested in a broad range of asset classes across the investment cycle is a time-tested strategy. Strong performance in a given year can be followed by significant underperformance or even painful drawdowns in others. Ideally, the investment process should be done by a team of investment professionals, which helps in taking the emotions out of investing, just like a world-class F1 team, with set investment objectives and risk limits.įinancial markets and asset class performance can vary significantly over time and is difficult to predict. Therefore, one of the ways to remove emotions from investing is to adhere to principles like portfolio diversification and regular rebalancing. Similarly, during times of market sell-down, due to fear and risk aversion, some investors may be unwilling to take calculated risks. Without data, investing based on emotion – greed or fear – is the main cause of why so many people are buying at market tops and selling at market bottoms.ĭuring times of market euphoria, some investors, due to the fear of missing out (FOMO), rush into a toppish market, underestimating the risks associated with investments and making suboptimal decisions based on emotions. Investors would do well to take a risk-informed approach as well. Data feeds into the team’s data center, which in real-time, together with the driver, assesses how to make the optimal risk-informed decisions. How does one manage risk? By using data to make risk-informed decisions.Īn F1 car has more than 100 sensors that monitor some 10,000 components, giving feedback on all sorts of data such as tire pressure, fuel burn and brake temperature, etc.
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