"Wall Street is the only place where people riding in Rolls Royces ask for advice from those taking the subway."
Wealthy individuals seek private banking (PB) services not just for recommendations on good investment products. Many lack the time to monitor the market daily due to their primary occupations, but more importantly, it is often harder than expected to view one’s own finances objectively.
When profits are up, everyone trusts their judgment, but losses can change perceptions dramatically. Investors may waver between thoughts of 'Should I wait a little longer?' and 'Should I sell before it drops further?' While numbers are objective, the emotions tied to those numbers are not.
Maintaining objectivity in investing and striving to remain rational is crucial. It is essential to avoid getting caught up in the realm of the impossible, which is prediction.
Before diving into asset management, the first step is to understand what kind of investor you are. Consider how much loss you can tolerate, the duration you can invest, the assets available for investment apart from living expenses, and the reasons behind your investment. This process is vital because the answers can differ significantly among individuals, even in the same market.
Recent concerns surrounding long-term government bond investments exemplify this. With the unexpected end of a prolonged low-interest-rate era and a sharp rise in rates, the prices of long-term bonds have fallen more than anticipated, increasing investor anxiety. It is important not to stop at the question, 'Did I buy long-term bonds incorrectly?'
If the outcome is different from expectations, the next question should be, 'How will I respond?' Long-term bonds will recover in price if interest rates decline again, but this process will take considerable time.
Conversely, for conservative investors with sufficient investment time, it may be better not to act hastily. Especially if their portfolio is already diversified and they do not urgently need short-term gains, they can leverage the long-term cycle of interest rates and the power of time.
Additionally, for asset holders considering the timing of gifts and facing significant gift tax burdens, gifting long-term bonds that have decreased in price can lower the taxable value of the gift. If the price recovers later, the increase in asset value can benefit their children. Thus, a price drop in cyclical investments like long-term bonds can present a good opportunity to reduce tax burdens, turning an investment setback into a chance to minimize taxes.
Even in the same loss situation with long-term bond investments, different solutions arise depending on the investor's circumstances and goals.
Experiencing an unexpected outcome is not a failure in itself. Since predicting the future in investing is inherently uncertain, there is no need to despair over outcomes that differ from expectations. What matters more is how one accepts those results and chooses the next course of action.
When seeking responses to prediction failures, a cold assessment of one’s situation must precede it. Therefore, it is crucial to objectively understand and organize one’s circumstances.
Similarly, the AI investment landscape, which has left many investors disheartened since June, should be viewed from this perspective.
Describing the essence of AI investment merely as 'AI will change the world and enhance productivity' fails to capture the nature of the capital flowing into the current market.
Thus, the questions investors should ask also change. Instead of merely questioning whether 'AI is a bubble' in the face of such volatility and losses, they should shift their focus to 'How can I benefit from this capital influx in the market?'
Of course, investors should avoid overextending themselves. If valuations have become excessively high, it is necessary to slow down and ensure that assets are not overly concentrated in one stock or industry. However, viewing the market solely through a pessimistic lens of 'It’s too expensive, so don’t buy' or 'The bubble will burst soon' is also risky, necessitating a shift in questioning.
Investors do not need to be either optimists or pessimists; they should acknowledge the direction of change while being cautious of overheating, based on their self-assessment, and determine how to participate within their capacity if that change continues.
Whether in long-term bonds or AI investments, experiencing outcomes that differ from expectations is not a failure. Since predicting the future in investing is inherently uncertain, there is no need to despair over unexpected results. What is more important is how one accepts those results and chooses the next actions.
If you are a PB, you do not simply tell clients to sell when the market is shaky. Instead, you reassess the client’s preferences, asset structure, and investment duration to find viable options. When circumstances change, you adjust the strategy accordingly.
Since predicting every investment scenario is nearly a divine endeavor, predictions can always fail. Therefore, it is essential to remember that the market is always changing and to establish your investment principles. Rather than deeming losses as failures, it is crucial to seek ways to overcome them and participate in opportunities without overextending oneself.
* This article has been translated by AI.
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