Selling Shares Held in a Trust: Timing Considerations
In the world of investments, it's essential to evaluate a fund manager's performance over a significant period, typically three to five years. This duration allows for a comprehensive assessment of a manager's ability to stack up against peers, or to recognise errors and change direction.
One of the most damaging psychological biases for investors is loss aversion, the tendency to hold on to poor investments in an attempt to avoid losses. However, it's crucial to remember that the idea of buying and holding an investment forever is not realistic, unless one is content with an index fund.
Understanding the factors contributing to a fund's performance is crucial before investing. For instance, the Finsbury Growth & Income Trust, managed by Nick Train, has produced a lower net asset value return compared to its FTSE benchmark over the past five years. The Trust has traded at a deep discount to its assets and has been buying back shares to reduce the discount, resulting in a decrease in net assets.
Fees as a percentage of assets have risen in the Capital Gearing Trust due to its continual share repurchasing. As a result, the Trust has seen a 23% decline in assets since the end of 2023, compared to a total return of approximately -8%.
The process of selling is considered the most important skill for investors to master. Selling a long-term holding is necessary to realise profit or exit a poorly performing investment. For example, the SDL UK Buffettology fund and the Jupiter UK Mid Cap fund have seen significant asset losses, signalling the need for a strategic sell-off.
Neil Woodford, a UK equity-income investor, faced challenges when he deviated from his strategy by investing in speculative small-cap venture investing. This move, while potentially promising, highlighted the importance of sticking to one's investment criteria.
It's important to note that past performance is not a guarantee of future returns. There is no magic formula to determine if a manager has lost their edge or made too many mistakes. However, continually reviewing and reevaluating one's positions can help investors determine if their investments still fit the original investment criteria.
In conclusion, a long-term, informed approach to investment evaluation is key. It's important to remember that taking a loss can be painful, but there are always new opportunities out there. As the saying goes, every end is a new beginning.
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