The Importance of Time, and Other Lessons I’ve Learned at Morningstar

As my time at Morningstar comes to a close, I reflect on the various ways time impacts our investment decisions. 

Kate Lin 12 January, 2024 | 9:46
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As I bid farewell to Morningstar, I find myself contemplating the concept of time and its relevance in the world of investing. I spent three years here – is three years a long time? That depends on your perspective.

Back in 2021, I joined Morningstar’s editorial team as a data journalist, at a time when Hong Kong stocks had just touched recent highs. The Hang Seng Index closed at above 29,106 on my starting date and it ended 2023 at 17,047. These three years of torrid slumps and market events felt much longer than other three-year periods I can remember – but that’s probably my recency bias speaking.

Compounding is Always On Time

I have witnessed firsthand through Morningstar’s data and research how time in the market and patience can lead to financial success. While preparing this article, I revisited some of the most frequently covered topics. A seemingly mundane investment basic emerged as a recurring theme.

The philosophy of compounding is not a new concept, and many of us have likely heard about it before. However, when applied to China equity indexes, the analysis has it that the rewards of staying invested can be realized if you possess the fortitude to let money work for you and compound over time.

One of these articles was written in 2021 and still holds relevance in today’s market environment. As it goes: “The stock market is seen as a risky investment if you look at it for the short term. Data have shown proof that long-term returns have outsized short-term fluctuations and have triumphed over the risk of missing the one best month on an annual return by betting in and out. In practice, trying to call the trough and the peak of the market prices is distinctly tricky. The strategy involves a great deal of knowledge and luck.”

This Is Money Earned

For individual investors who lack experience and time in technical research analysis, market timing often becomes driven by biases like loss aversion or herd mentality. This can lead to buying high and selling low. Over time, drawing suboptimal investment outcomes consistently could derail your long-term financial goals.

As I concluded in another article, “although it is very tempting to be drifted by social media hearsay or catchy slogans, timing the market rarely affords better returns. Technical analysis techniques have its place in betting against investor behavior, as it requires a great deal of attention and skill to execute consistently and success.”

Tune out the bear markets. Bear markets will come, so will bull markets – that’s what we call the investment market going through cycles. Timing the market, whether it is predicting short-term market trends or interest rates, can cost you. What you need is time in market. Staying the course will bear fruit if you endure the time with discipline.

On the flip side, compounding works both ways, and if your fees compound, that can be very bad indeed. We examine investment opportunities and risks, whilst also considering the cost angle. Low fees help a fund’s Morningstar Medalist Rating versus their more expensive counterparts as  the Morningstar Manager Research team subtracts a fund’s expenses from their estimate of how much value it can add before fees. If there’s nothing left for investors, then they won’t recommend the fund. We also made a follow-up video on how the “eighth wonder of the world” should work for you in terms of generating returns, not accumulating fees.

Side with Knowledge, Not Luck

I am certain at some point in your investment journey (and mine too), boring facts can get in the way, either when you’re researching a stock, a fund, or studying a new investing trend.

Let me share an anecdote with you. As an editor, from time to time, I look at how our viewers consume Morningstar’s content. The insights help us optimize future articles and videos to better serve the community. We often notice a common “drop-off point” among viewers— somewhere the speakers start to drift to market context or delve into details.

Personally, I believe the best way to invest better is to have a deep understanding of what you’re dealing with. Therefore, while it may not be necessary to time your reading, it is crucial not to lose focus on the crucial context that underpins your investment decisions.

Time Deposit

Moving onto the industry observations, the fund business globally was most recently challenged by higher-yielding time deposit. It perhaps has worked wonders for investors in 2023. As we step into a new year, it is essential for investors to carefully assess the trade-offs associated with short-dated instruments like time deposits and money market funds. They are meant for managing cash for a short while, or what people describe it as “parking.”

What’s the matter with time deposit? Firstly, their yields can fluctuate, and this becomes even more relevant as the Federal Reserve halts rate hikes and bank yields tend to fall. Secondly, there is a dismal chance of beating inflation in the long run, which can lead to a decline in the value of money.

To capture the capital upside potential and let it ride on the compounding effect, allocating to risky assets that are in line with your financial goals should still be on the table. 

It's About Time

Echoing the opening, one last thing I learned the hard way over the past three years, is that “cheap stocks can get even cheaper.” While valuations do matter, we must acknowledge that there are other crucial factors to consider beyond just the value of our assets. Like the legendary economist John Maynard Keynes said, “the markets can remain irrational longer than you can remain solvent.” As much as we hope for a turnaround in our holdings, comprehensive analysis requires a holistic approach.

The markets can be turbulent and unpredictable. This is very true in this part of the world. By having a well-defined investment strategy and the patience to allow the compounding to happen, we can confidently navigate the ups and downs. Finally, never forget that diversification is the only free lunch in investing.

To our readers, thank you for trusting us and engaging with our content. Your support and drive to take control of your financial future have constantly motivated me to deliver the highest quality articles and videos. It has been an honor to be part of your investment journey. For Morningstar, I have been Kate Lin, and it's about time for me. However, Morningstar will continue to support your journey with more and better investment research and insights.

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About Author

Kate Lin

Kate Lin  is an Editor for Morningstar Asia, and is based in Hong Kong

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