Investing for the Long Run

15 Pages Posted: 12 Nov 2011  

Andrew Ang

BlackRock, Inc

Knut N. Kjaer

Independent

Multiple version iconThere are 2 versions of this paper

Date Written: November 11, 2011

Abstract

Long‐horizon investors have an edge. They can ride out short‐term fluctuations in risk premiums, profit from periods of elevated risk aversions and short‐term mispricing, and they can pursue illiquid investment opportunities. The turmoil we have seen in the capital markets over the last decade has increased the competitive advantage of a long investment horizon. Unfortunately, the two biggest mistakes of long‐horizon investors - procyclical investments and misalignments between asset owners and managers - negate the long‐horizon advantage. Long‐horizon investors should harvest many sources of factor risk premiums, be actively contrarian, and align all stakeholders so that long‐horizon strategies can be successfully implemented. Illiquid assets can, but do not necessarily, play a role for long-horizon investors, but investors should demand high premiums to compensate for bearing illiquidity risk and agency issues.

Keywords: contrarian, countercyclical investing, agency problem, delegated portfolio management, illiquid investments

JEL Classification: G11, G12, G23, G34

Suggested Citation

Ang, Andrew and Kjaer, Knut N., Investing for the Long Run (November 11, 2011). Available at SSRN: https://ssrn.com/abstract=1958258 or http://dx.doi.org/10.2139/ssrn.1958258

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Knut N. Kjaer

Independent ( email )

No Address Available

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