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Why investors should keep a diary

05 March 2024

Writing down the reasons for choosing a fund in a journal should help investors put periods of short-term underperformance into context.

By Emma Wallis,

News editor, Trustnet

No active manager will excel all the time; by virtue of deviating from index weights, managers will both outperform and underperform, sometimes significantly and sometimes for long periods of time if their style is out of favour. In these instances, it can be helpful to revisit the rationale for choosing the fund in the first place, which is where journaling comes in.

Equity managers revisit their initial investment thesis whenever a stock they hold plummets to check if their reasons for investing still stack up and private investors should do the same for their funds, according to Felicia Hjertman, founder and chief executive officer of Tillit.

Before making an investment, Hjertman recommends writing down what you are trying to achieve, why you are choosing a specific fund, the role you want it to play in your portfolio and the market conditions in which you expect the fund to succeed or flounder.

“It keeps you honest,” she said. “Your future self will thank your past self for writing it down.”

Investors need to thoroughly understand a fund manager’s investment strategy in order to stick with them throughout the cycle and refrain from selling whenever a strategy falls out of favour, Hjertman said. “It would be madness to expect any fund to outperform in every market.”

Keeping a diary is something she was encouraged to do during her time as a fund manager with Edinburgh-based asset manager Baillie Gifford, so she has first-hand experience of how useful these notes are to go back to.

Keeping an investment journal, researching and understanding funds should help investors to cope with the ups and downs of financial markets, as well as avoiding the classic mistake of selling when markets drop and crystallising losses.

Hjertman said when markets fall, investors on Tillit’s platform tend to add money, so there is evidence of the “long-term, thoughtful investor behaviour” she “always wanted to foster”.

Tillit’s investors tend to select 10-15 funds or fewer that they research and get to know well, she added.

Hjertman wants Tillit’s clients to select funds for the right reasons, with their eyes wide open, not just because a fund has great marketing. As a result, investors will “panic less when things go wrong because you know why you invested,” she explained.

The dichotomy between growth and value managers during the past decade illustrates the extent to which styles can swing in and out of favour.

Growth managers such as Baillie Gifford have had a tough two years but a tremendously successful decade prior to that, whereas value has been so out of fashion that Tillit struggled to find enough value managers to add to its platform when it opened in November 2021. Value managers had either gone out of business or stopped describing their strategies as value, Hjertman said.

Since then, she and her colleagues have been steadily adding value managers to the Tillit universe. The platform now showcases 13 value funds (whereas it has 40 growth funds) including Invesco UK Opportunities, J O Hambro UK Dynamic, Premier Miton UK Multi Cap Income and River and Mercantile Global Recovery.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.