Source: Motley Fool
Morgan Housel has a very insightful column this morning, driven by one of my favorite topics: Taking yourself out of the minute-to-minute, day-to-day time frame and rethinking your investing parameters in terms of years and decades.
That longer time frame is an enormous luxury, a monstrous advantage amateurs at home have over the pros.
“You’re trying to fund your retirement over the next 20 years. Hedge fund managers have to woo their clients every month. You’re saving for your kids’ education next decade. Mutual fund managers have to fret about the next quarter. You can look years down the road. Traders have to worry about the next ten milliseconds.
Most professional investors can’t focus on the long run even if they want to.”
Or to be even more succinct, Henry Blodget observes that professional managers are “thinking about the next week, possibly the next month or quarter. There isn’t a time horizon; it’s how are you doing now, relative to your competitors. You really only have ninety days to be right, and if you’re wrong within ninety days, your clients begin to fire you.”
That is the beauty of the chart above showing (inflation-adjusted) S&P500 returns going back to 1871 relative to various holding periods.
Short term is more or less random; longer term, the odds move in your favor. And very long term approaches 100% positive returns, even after inflation.
“Hold stocks for a year (Wall Street’s territory) and you’re at the mercy of the market’s madness — maybe a huge up year, or maybe a devastating loss. Five years, and you’re doing better. Ten years, and there’s a good chance you’ll be sitting on positive annual returns. Hold them for 20, 30, or 50 years, and there has never been a period in history when stocks produced an average annual loss. In fact, the worst you’ve done over any 30-year period in history is increased your money two-and-a-half fold after inflation. Wall Street would love to think about those numbers. Alas, it’s busy chasing its monthly benchmarks.”
Go read the full piece + see the rest of the charts. Its great stuff . . .
Your Last Remaining Edge on Wall Street
Motley Fool, June 18, 2013
Click to enlarge Major U.S. indices such as the S&P 500 and the NASDAQ Composite have both recently stabilized and bounced for the second time off their respective 50 day moving averages. Though historically June tends to be a negative month for stocks, with only 9 trading days left in the quarter we wonder aloud…Read More
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Category: Financial Press
The pushback from the weekend’s WaPo column was surprisingly fierce. If you can tell me what asset classes will perform best each year in advance, than by all means over-weight that sector. But if you are like the other 99.99% of investors, you are probably better off saying to yourself “Why should I guess when…Read More
My morning reads: • Duh: High-frequency trading tactic lowers investor profits (Phys Org) • Quantitative easing may be most powerful when it ends (Telegraph) but see QE addiction may be hard to kick (FT.com) • Stan Druckenmiller: ‘Do I Have A Competitive Advantage Left?’ (Moneybeat) • FHFA Hires Insurance Lobbyist as Insurance Consultant (American Banker)…Read More
Category: Financial Press
I have a few conferences coming up later this summer, and as part of one event, I was asked a series of questions in advance. Its a pre- interview, and I figured I would work my way through the questions a little bit all week. But then I read the first question — the headline…Read More