The Long Run
Much of our lives is consumed by the short-term. One case where this is evident is our relationship with the news. It used to be that a 24-hour news cycle was sufficient, with daily newspapers and local television news. Then with the arrival of cable news networks and the growth of the World Wide Web, the news cycle contracted to mere hours. More recently, the proliferation of social media has made the news nearly instantaneous. So little of what is said on television or posted online daily by the media is of any long-term consequence, yet as a society we spend so much of our time watching television and consuming content online.
Short-term-mindedness is also pervasive and particularly unhelpful in the financial news media. They foster a culture focused on short-term returns, frequent trading, and the illusion that the average individual investor can beat the market in his spare time. The result is high turnover, high transaction costs, and underperformance. But financial news outlets make money based on viewers and advertising (not investment performance), so they give the audience what they want (instead of what they need).
What investors need is an unwavering focus on the long run. The primary purpose of financial planning and investing is to provide for ourselves and our families for the long run. So the only investment performance metrics we should care about are those that measure the long-term. Forget daily fluctuations in the stock market. Why do we even measure investment performance over a period as short as a month or a quarter or a year? If we can move away from this mindset and focus on the long run, we have an advantage over all institutional investors and asset managers. They are all focused on the short run because they are judged on relative performance compared to a benchmark every year.
“Let us run with endurance the race that is set before us.” – Hebrews 12:1