Breaking the Mindset of Short-Termism

Breaking the mindset of the so-called short-termism mentality is a daunting undertaking. In recent days, we have seen the returns of public investors such as the China Investment Corporation, which in 2011 had a -4.3% on their global investment portfolio or CalPERS earning a 1% return for 2011. Public pensions are under a hyper-focused microscope due to their contingent liabilities and known fact that decreases in funding levels can hit taxpayers’ wallets. This is amplified by a volatile investment universe starting with the global financial crisis in 2008. Hence the lengthy debate over public employee benefits, investment performances, administrative costs, and compensation of public investor employees. Many plans have annual target returns computed to see if the pension fund can be solvent. Investing in public markets and other asset classes produces varying returns. In fact, returns fluctuate frequently. It is nearly impossible to hit 7 to 8% annual returns every year, when you are a long-term of even a short-term investor managing a large pool of money. Public investment organizations that have a consistency of hitting a 7 to 8% return every year should raise questions to regulators.

The investment concept of long-term investing is often misunderstood by the media. Long-term investors are challenged to not only manage money but to educate the public, the media, and stakeholders that having one year of negative or lackluster returns isn’t the end of the world.

Granted, a series of negative returns should definitely raise eyebrows.

Chief Investment Officer of CalPERS Joe Dear, stated, “The key to having a strategy is working with it. The worst mistake is to abandon the strategy when it appears to have some trouble.”

This falls the other way, when public pension plans have stellar returns. In this case, politicians and cities beg for lower contribution rates and sweeter benefits. This can tip the balance and increase pension liabilities which in the end, hurt taxpayers and beneficiaries.

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