The revelations of the Royal Commission into Banking and Superannuation are unfortunately nothing new for the financial planning industry in Australia. It has been evident, to us at least, that the typical Australian investor, whether an SMSF trustee, or so-called retail client, has been getting a raw deal when it comes to financial and investment advice. Whilst the lack of service and exorbitant fees is the focus of the Royal Commission, we know that the issues run deeper. The problem is that the highly regulated industry, driven by vertically integrated and conflicted  companies, has removed the ability of advisers to think independently. The result has been that most financial planners recommend what is best for their business and easiest to implement, rather than what is in the best interests of their client. Whilst this pervades a large portion of the industry, there are an increasing number of independent advisers, including Wattle Partners, who think differently, and want the best for their clients. In light of what we have seen in recent months, and over many years, we thought it would be worthwhile analyzing the investment strategies of some of the world’s most successful investors. The aim being to identify opportunities that advisers and investors alike can implement in their own portfolios. A short disclaimer; this article won’t be full of Warren Buffet or Benjamin Graham quotes taken out of context to put forward a point, but rather on identifying the key lessons that investors can learn from the world’s most successful investors. Introduction  You would be forgiven for thinking that we would analyse the portfolios of Warren Buffett, Ray Dalio, or Howard Marks. Rather we have chosen to focus on the manner in which institutions choose to invest their portfolios, as we believe these entities, with specific income requirements and a longer-term investment horizon, are more reflective of Australian superannuants. We have chosen to focus on three  institutions in particular: The Yale Endowment Fund – Through hich USD$27.2 billion is managed for the benefit of the university and its members, and has delivered returns of 12.1% per annum over the last 20 years; Australia’s Future Fund – Through which AUD$139 billion is managed for the funding of public servant pensions, and has delivered returns of 9.9% per annum over the last 7 years; An Industry Super Fund – Through which many billions of dollar are managed on behalf of a diverse range of members, and has delivered returns of 12.72% per annum over the last 7 years. Before proceeding with our analysis, it is worth giving some initial consideration to the underlying strategy that each of these institutions implement. In the charts above, we have provided a graphical summary of the current asset allocation of each fund, along with that of a typical SMSF investor, according to the Super Concepts 2017 report. You can see quite quickly, that the investments approaches are vastly different. Through our analysis, we identified the six most important lessons that we have learned from the most successful investors and how we have used them to benefit our clients. The discipline of a tailored Investment Policy; (Discipline) The alternative view of asset allocation and liquidity; (Liquidity) The ability to be patient; (Patience) The understand that assets markets are inefficient; (Inefficient) The value of outsourcing to other professionals; – aligning capital to the best investors (Alignment) The importance of access to investments and deal flow. (Access) Discipline The most important lesson, is that all successful investors understand the importance of discipline. Investing on behalf of others (including yourself) increases the need to have a written Investment Policy in place, and the discipline to deal with various events. The type of Investment Policy we are describing isn’t the two-page, templated document provided by your accountant every year; it is a detailed outline of the most important parts of your investment strategy. Unfortunately, this is something that most people skip over, preferring to pigeon hole investors into simple portfolios or make decisions on the fly; yet it can be the difference between success and failure. In our experience, the reliance of most investors and financial planners on a static asset allocation approach effectively ensures underperformance over the long-term. As Yale Endowment puts it ‘The definition of an asset class is subjective, requiring precise distinctions  where none exist’. Yet most of the industry still operates in this way. We view an Investment Policy differently, and our approach has a number of major differences to the status quo: Objective Return – Investors tend to approach returns the wrong way, targeted a specific asset allocation and receiving the return it provides, when they should actually be determining what return they need and adjusting their asset allocation appropriately. Why take more risk than you need to? Investment Timeframe – The most successful investors understand their real investment horizon, whereas most retail investors tend to have a short-term and backwards looking view. For most superannuants, your investment period may be much longer than you think, pushing 25 to 30 years. So why make decisions based on short-term price fluctuations. Asset Allocation – Asset allocation is considered a static concept, in that you decide on an allocation to arbitrary assets and stay with this in the long-term. What if your returns exceed expectation and you have more capital than you need, or what if markets rally exponentially during your retirement? In these instances, it is important to have the flexibility to adjust your approach and asset allocation. This isn’t the + or – 5% or ‘dynamic allocation’ planners typically espouse. Investment Rules –Investment markets are driven by emotion and sentiment. The only way to minimise the risk of emotional and uninformed decision making that leads to poor outcomes, is it put in place rules and guidelines in an Investment Policy. These include minimum and maximum allocations to countries, individual companies, markets or indices, stop losses strategies  to protect capital, or minimum levels of diversification. Review & Benchmarking – Asset markets are not static and nor should your Investment Policy be, it should be reviewed regularly. More importantly, it is important that you are both: a)  easuring your returns; and b) comparing your returns to a suitable benchmark. For instance, there is no point comparing a 30/70 portfolio to a typical ‘balanced fund’ when most tend to be closer to a 10/90 asset allocation. Liquidity The most successful investors tend to take a completely different view on asset allocation and what constitutes an appropriate investment. Even a glance at the bar charts (on the front page) shows the glaring difference between institutions and everyone else. By understanding their investment horizon and identifying a return objective that delivers what they require, more tailored and appropriate portfolios can be constructed. The glaring difference between SMSFs, or planning clients, and institutions, is the allocation to private markets and unlisted assets. For instance, Yale Endowment has just 20% of its portfolio invested in listed securities, and the Future Fund around the same level.  They also tend to take a much more global view on investing, seeking to identify  opportunities across the globe, with both having just 4% and 6% respectively in equities of their home country. The lesson we take from this analysis is that understanding your time horizon, allows investor…

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