In the long run we are all dead
Long term is harder than most people imagine, which is why it’s more lucrative than many people assume. Everything worthwhile has a price, and the prices aren’t always obvious.
By Capital Thinking • Issue #859 • View online
“Nothing will ever separate us. We will probably be married another ten years.”
–Elizabeth Taylor, five days before filing for divorce
How to Do Long Term
Morgan Housel | The Collaborative Fund Blog:
Long-term thinking is easier to believe in than accomplish.
Most people know it’s the right strategy in investing, careers, relationships – anything that compounds. But saying “I’m in it for the long run” is a bit like standing at the base of Mt. Everest, pointing to the top, and saying, “That’s where I’m heading.”
Well, that’s nice. Now comes the test.
Long term is harder than most people imagine, which is why it’s more lucrative than many people assume. Everything worthwhile has a price, and the prices aren’t always obvious.
The real price of long term – the skills required, the mentality needed – is easy to minimize, often summarized with simple phrases like “be more patient,” as if that explains why so many people can’t.
To do long term effectively you have to come to terms with a few points.
1. The long run is just a collection of short runs you have to put up with.
Saying you have a 10-year time horizon doesn’t exempt you from all the nonsense that happens during the next 10 years. Everyone has to experience the recessions, the bear markets, the meltdowns, the surprises and the memes at the same time.
So rather than assuming long-term thinkers don’t have to deal with nonsense, the question becomes how can you endure a neverending parade of nonsense.
Long-term thinking can be a deceptive safety blanket that people assume lets them bypass the painful and unpredictable short run. But it never does.
It might be the opposite: The longer your time horizon the more calamities and disasters you’ll experience. Baseball player Dan Quisenberry once said, “The future is much like the present, only longer.”
Dealing with that reality requires a certain kind of alignment that’s easy to overlook:
2. Your belief in the long run isn’t enough. Your investors, coworkers, spouses, and friends have to sign up for the ride.
An investment manager who loses 40% can tell his investors, “It’s OK, we’re in this for the long run,” and believe it. But the investors may not believe it. They might bail. The firm might not survive. Then even if the manager turns out to be right, it doesn’t matter – no one’s around to benefit.
The same thing happens when you have the guts to stick it out but your spouse doesn’t.
Or when you have a great idea that will take time to prove, but your boss and coworkers aren’t as patient.
These are not rarities. They’re some of the most common outcomes in investing.
A lot of it comes from the gap between what you believe and what you can convince other people of. Intelligence vs. storytelling.
People mock how much short-term thinking there is in the financial industry, and they should. But I also get it: The reason so many financial professionals stray towards short-termism is because it’s the only way to run a viable business when customers flee at the first sign of trouble.
But the reason customers flee is often because investors have done such a poor job communicating how investing works, what their strategy is, what they should expect as an investor, and how to deal with inevitable volatility and cyclicality.
Eventually being right is one thing. But can you eventually be right and convincing to those whose support you rely on?
That’s completely different, and easy to overlook.
Morgan Housel
Time is compounding’s magic whose importance can’t be minimized. But the odds of success fall deepest in your favor when you mix a long time horizon with a flexible end date – or an indefinite horizon.
Ben Graham said, “The purpose of the margin of safety is to render the forecast unnecessary.” The more flexibility you have the less you need to know what happens next.
And never forget Keynes: “In the long run we’re all dead.”
Photo by Hayden Walker on Unsplash