Horizon Kinetics: Challenges For Long-Term Value Investors

Horizon Kinetics: Challenges For Long-Term Value Investors

Horizon Kinetics market commentary for March 2015, titled “Time and Chance.”

For long-term value investors, risk is not defined by the level of volatility but by the likelihood of shareholder capital being permanently impaired. Though often vilified, share price volatility is actually opportunity masquerading as Warren Buffett’s heavy-drinking manic depressive—“the crazier he is, the more money you’re going to make.”1 In other words, volatility often proves a significant advantage to the long-term investor, since the result can be an increase in the frequency of mispriced securities (i.e., opportunities). Less sanguine types simply accept it as an inevitable and unpleasant part of the investment experience. That said, in the behavioral psychology context, the frustration that some investors feel when their portfolios exhibit volatility that exceeds expectations is certainly understandable, especially if such volatility is not associated with positive excess rates of return in the near term.

Horizon Kinetics: The challenge for investors

The challenge for investors—professional or otherwise—is to remain steadfast during periods of elevated volatility and the oft-associated underperformance. This is not to say that investors should stubbornly refuse to revisit their investment theses if the fundamentals have changed. Rather, it refers to the ability to tolerate short-term stock price fluctuations when the fundamentals have not changed and still appear favorable. This uncommon ability not only epitomizes the successful investor but the successful decision maker in any field where there is an element of chance.2

Bonhoeffer Fund July 2022 Performance Update