“The most overlooked trait of investing success is communicating to your clients the softer and emotional side of investing,” writes Morgan Housel, partner at The Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal.
The premise of Housel’s blog post is that being a great investor is not necessarily the same as running a great investment firm, and that clients can’t benefit from advice or performance track records unless they “stick around.” Housel advocates for clear and honest communication between managers and their clients in order to address “the psychological barriers that push them away from adhering to good advice.”
While Housel admits that some financial professionals are fixated on the short term, he explains that it may be due to their clients’ tendency to “flee at the first sign of trouble.” This, however, is often due to the manager’s lack of guidance about how to confront “inevitable bouts of volatility and cyclicality.” Effective and consistent communication between managers and clients will reassure them, which may convince them to sit tight when things get rocky, which then leads to success for the management firm.
Housel quotes WSJ’s Jason Zweig: “For any investor to be able to capture a premium return from any factor, you have to be there long enough to participate. There are a lot of active managers who have a great approach and philosophy and implementation, but I think the ones who are most admirable are the ones who think a lot about managing their investors as well as the investments.”