Skip navigation Scroll to top
Scroll to top

LGT Investorama: The really good investment concepts survive, even without a time machine

July 5, 2018

Have you ever heard of Dr. Who? Thanks to my English brother-in-law, I got to know and love this cult series which three generations have grown up with in the UK. Dr. Who, the eponymous main character, is able to travel through time and space in an old police box. Having worked in asset management since the end of the 1990s, what kind of sensible advice would I have given my previous self if I had had a time machine like Dr. Who?

First: Do not invest in anything you do not understand. The dotcom bubble around the time of the new millennium is a classic example. The share prices of new-economy technology companies were many times more than the gains they achieved and were far from reality. The boom was triggered by the high earning expectations and confidence in an ongoing rise in share prices, in turn sparked by new and sometimes exotic products that were difficult to understand. Second: Although corrections are painful, they do have their positive side. Spectacular crises, such as that of 2008, have often marked a turning point in stock market movements. Similar to removing rust from a car, this leaves behind large holes but the healthy parts are stronger than before. And when the prices of even healthy stocks come under severe pressure in financial crises, investors can benefit by taking advantage of anticyclical buying to add to their portfolios. Third: Stay disciplined even when times are tough. This is easier said than done, particularly if the markets seem to be going against you for a longer period. When frustration and fear get the upper hand, there is a great temptation to abandon the preassigned strategy prematurely. Aaron Brown, mathematician and poker player, hit the nail on the head in his best seller “The Poker Face of Wall Street,” in which he wrote that “Having a non-stupid strategy and sticking to it will leave you better off than most people.”

20, 118, 16. Unfortunately, this is not the code for the time machine, although as an investor in the current late stages of the bull market, I would love to be able to look into the future. These numbers stand for the Princely Strategy, which is celebrating its 20th anniversary this year. Over this period, the Princely Strategy has generated returns similar to equities –118% on a cumulative basis net of fees – but with a risk that is lower than what would be considered normal for equities. It was navigated by a stable and experienced team of experts through good times and the aforementioned crises. The members of the team of experts have been at LGT for an average of 16 years, which is the exception rather than the rule in today’s fast-moving times. What began in 1998 as a multi-billion investment for the owner, namely the Princely House, and was soon opened for clients, is today a flagship investment strategy of LGT that manages more than USD 12 bn. The owner and employees own a significant stake in the Princely Strategy and invest more than USD 3 bn of their own money together with clients. This guarantees a strong alignment of interests. We ask the same of external managers and place great emphasis on the fact that they also commit a substantial portion of their assets in the components managed for us within the Princely Strategy. In implementing the various investment categories, we believe a balance can be found between exceptional managers, so-called best-in-class managers and efficient access to market exposure through cost-effective passive solutions.

Diversification is ultimately the key to the Princely Strategy’s long-term investment success. Reasonable diversification of the risk factors is the first and most important line of defense against major losses. In addition, our intention with the Princely Strategy is to develop a long-term investment strategy that proves to be robust under a wide variety of market conditions. For this reason, private market investments and alternative investments form a major part of the strategy, as they can provide additional sources of returns (thanks to private equity investments, for example) and desirable diversification features (e.g. the inclusion of insurance-linked strategies), respectively. Konrad Bächinger, who is now retired but still brings the owner’s point of view into the discussion as part of the Princely Portfolio Team, says: “Only really good investment concepts survive such a long period of time.” And they do so even without Dr. Who’s time machine!

Marcel Dillier
Co-Head Key Account Management

Download LGT Investorama

The LGT Investorama we can only show you depending on your country of domicile. To download this document onfrom our webpage "Market information" please go to “Domicile selection” first.