Costa Rica Investing. Chasing performance

We represent many well-managed offshore investment funds but, investors that are always looking for the ‘hottest’ fund, rarely seem to remember that a high percentage potential gain is normally accompanied by high level of risk and volatility.

It is understandable that investors want the best return on their money for the least amount of risk but, in a raging bull market, it’s normally their greed that makes the decision and not their fear.

One of our clients recently asked us to comment on the track record of a private ‘hedge’ fund he was considering. He said it was a ‘hot’ fund, it was up 65% 1997, down 35% in 1998, up 20% in 1999 and down 33% in 2000. Why do we tell you this? If you were ‘chasing performance,’ you would have been impressed by this ‘hot’ fund’s 1997 performance.

You would have been thrilled to invest at the beginning of 1998 but not too happy at the end of the year. Fact is your portfolio would have made you more money in a pretty average mutual fund (with a lot less stress) than it did in this ‘hot’ fund during the same period.

The majority of patient investors (AKA the richest ones,) prefer to see their portfolios move steadily but consistently higher over the long term.

The key is to get rich slowly!

This brings us to the next problem because we nearly always see the same investors who ‘chase performance’ become disappointed because the fund has a bad year, (normally right after one of it’s best years), and the investor sells it then tries to find the next ‘hot’ fund and so the vicious cycle goes on.

In ‘good times’ the media unfortunately portray it as if ‘everyone is making so much money,’ but it’s simply not true, never has been and never can be.

Even the world’s greatest investment managers have tough times. Warren Buffet has a well-deserved reputation as a successful, long term, ‘value’ investor so people were shocked to see that ‘Berkshire Hathaway’ stock was down 46% one year. Even the US$6 billion Quantum Fund managed by George Soros has had a couple of very tough years.

As always, we would strongly encourage you to seek professional advice before investing.

[custom_script adID=97]

Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.