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.

Here’s Housel:

“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
Morgan Housel
Motley Fool, June 18, 2013



The Rolling Stones – Time Is On My Side

Category: Asset Allocation, Investing

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “Time, Time, Time Is On Your Side (Yes it is)”

  1. Moe says:

    Thanks for posting this – great stuff indeed!

  2. jlj says:

    a 5 to 10% return over a 30-50 year time horizon? Would be interesting to see the same charts vs the return of a savings account.

  3. Rightline says:

    Interesting, but how do we reasonably reconcile this with the numerous “death of buy and hold” articles we have read?

  4. super_trooper says:

    I would love to see how fees are impacting this plot.
    Going with Vanguard’s low fees or the premium prices.

  5. MV says:

    I’d be interested in a chart that includes international market returns over centuries (if possible). Is it correct to assume the US market is a exception to world history and we can project this performance decades into the future? The world was very different in 1871 and the next 140 years might not be like the past 140. I wonder what financial analysts in the British Empire circa 1870 would have said?

    • cowboyinthejungle says:

      Blasphemy! How dare you question the narrative of perpetual growth and progress? Oh, you’re only questioning the American version? Well, i suppose you’re simply unpatriotic, rather than a true heretic.

  6. rd says:

    Just as importantly, many of the Wall Street yachts are purchased by the transaction and management fees that Wall Street extracts from Main Street investors who play in the Wall Street time horizons.

    Low turnover with low expenses with an eye on a 30 year time horizon is exactly the strategy that 95% of the financial sector does not want you to have and their entire advertising budget is geared to direct you away from this strategy.

    Now that expenses and fees have to be reported in 401ks which is causing fee reductions (I am seeing significant expense reductions in my 401k just in the past two years), the drumbeat is rising from Wall Street that 401ks are not serving their clients well and alternative forms of savings and investment are required. When they were getting 1%+ in fees, we were hearing that 401ks are the way to go.

    Trading is really difficult. Long-term investing for reasonable goals is not. Instead, it’s the savings and budget discipline part that is the most difficult.

  7. Chief Tomahawk says:

    Stocks for the Long Run by Jeremy J. Siegel?

  8. Bam_Man says:

    I have long maintained that little guys (like us) have one big advantage over the institutions – we can afford to “look stupid” for long periods of time. I believe that is just as true today as it was 20+ years ago, except now you have to be willing to “look REALLY, REALLY stupid” for even longer periods of time – thanks to the popularity of momentum/trend chasing.

  9. Al_Czervik says:


    Fees are one issue. Another is the mental aspect of investing. Barry has written about this extensively.

    The tool that he links to shows that the longer the holding period, the greater your minimum expected rate of return. The worst result over a 3-year period is -34.4% compounded (71.8% cumulative). Many investors would be inclined to bail following such a result and make that loss permanent.

    The key is to understand yourself and manage risk to avoid succumbing to your worst mental demons. To paraphrase Barry, an investment program that you can live with is better than the mathematically optimal one that keeps you awake at night. For me, this means making small adjustments frequently (about once weekly, on average) to satisfy the need to “do something”. The annual cost of commissions is less than 0.05% of my account value and I am dealing with tax-preferenced retirement accounts. YMMV

    • bonzo says:

      Yes, the tendency to bail is the great flaw with buy-and-hold. Or you could hold a lot of bonds, but then you won’t get those big returns of the 100% stocks portfolio. Which is why I have always tried to buy-low and sell-high. I miss a few rallies this way, and even for the rallies I do participate in, I always get out too soon, but I also miss most of the busts, so my long-term return is still excellent and I sleep very well.

  10. SecondLook says:

    From 1900 to about 1954, the London Stock Exchange (which would be the closest historical parallel to the NYSE), ended up having an inflated-adjusted total net return of 0%. This history goes a bit counter to commonplace notions about the duration of secular bear markets, and the extension that, over the very long run stocks go up – 50 years is an effective adult lifetime, and that is the long run for most of us.

    One could argue that what happened to the British over those decades, and by attachment, their stock companies, was distinct: As Tolstoy famous opening line goes: “All happy families are alike; each unhappy family is unhappy in its own way.”
    Still, for every Greatest Power, bad stuff happens; inextricably, repeatedly.

    We won’t be like the London Exchange, but we won’t be like we were over the last 50 years…

    • rd says:

      Bankrupting your country twice and losing your empire in a 50 year period can be a real downer.

      Foortunately, we have geniuses in Washington who will ensure that htis does not happen to the US.

      • bonzo says:

        In all seriousness, climate change could be a lot worse for the whole world than two world wars were for the British. Scary stuff out there about methane releases in the arctic, tipping points, etc.

    • sellstop says:

      That was about the timeframe that they were paying down their debt of the previous century..

  11. Non Sequor says:

    Individuals have the option of changing when they cash out/derisk their portfolios but have no (sane) option of cashing out now and spending the money on something else.

    Financial companies on the other hand, generally have (or have to convince counterparties, shareholders, and regulators that they have) the option of liquidating their portfolios at any given time and using the net proceeds for something else.

    Different actors have different constraints on their abilities to realize unrealized gains at given points in time. Current financial theory does not ad

  12. Non Sequor says:

    Last sentence was supposed to be:

    Current financial theory does not adequately account for this.

    Why on earth are comment boxes so finicky on phone browsers these days?

  13. resuscitate says:

    Sampling problem….Need data and illustrations for other countries whose ecomies have matured before ours.
    Over the time span mentioned, the US was supplanting the British Empire; our young labor force was industrious and competitive; our economy was becoming the number one in the world; the dollar was the world’s de facto currency; our geographic was shielding the country from the full blows of World Wars; etc… Hmm., wonder how all those pivotal events have affected the ROI? Question is going forward will the favorable parameters still be in play? We have transformed from resource-rich exporter to powerhouse manufacturing to the current asset-based, credit driven, dollar exporting economy over this time span. The transformation was necessary for continuing growth and development. As seen the first two paradigms expired, the last one after 30 yrs nearly collapsed the world. Although resuscitated, the economic model has lost much credibility. What is the next growth paradigm? Looking back in time, it is not too difficult to see how well we have done as a nation. Looking forward into the future, given the environment we are in, it is hard to see if our economy can continue to generate comparable ROI.

  14. [...] out: (1) Your Last Remaining Edge on Wall Street by Morgan Housel and (2) Barry Ritholz’s post about that post.  So yeah, you will basically read three articles about the exact same thing but this is an [...]

  15. SecondLook says:

    Data from “Scale and Scope: The Dynamics of Industrial Capitalism” by Alfred Chandler

    From 1870 to 1979 per capita income in the United States (adjusted for inflation) went from $764 to $6,055.
    For Great Britain, it went from $972 to $3,981.

    Even more remarkably, our population boomed hugely compared to Britain: We had about 39 million, they had about 31 million in 1870, by 1979 we had grown to over 220 million, they grew to 56 million.

    Huge population increase, accompanied by major national income growth, a tremendous domestic demand for American companies. It’s hard to imagine, that allowing for the usual downs in the business cycle, that over any multi-decade period, American public corporations wouldn’t have done exceptionally well.

  16. Malachi says:

    So we are doomed for significantly lower average rates of return over the upcoming decades?