Think In Terms Of Years And Decades

by: Roger Nusbaum

Barry Ritholtz posted a link to a profile/interview he did with Money Week in the UK which concluded with a very important quote:

“Learn to think in terms of years and decades, not days or weeks; use a good asset allocation model to own a broad and diverse (low fee) asset classes; rebalance [your portfolio] regularly; give up the stock picking (leave that to the idiots on TV). Oh, and shut the TV off altogether.”

Barry and I have been acquaintances going back almost to the start of my site. We email a couple of times a year and every so often he is kind enough to link to something I've written. We draw similar conclusions about some things but not others but his above quote is very important.

One comment we've heard several times in this year's Tour de France is that they can't win the Tour today but they can lose it today and this relates perfectly to investing too. Investors often get hung up on very short-term results. Last month or last quarter was a good one or a bad one. Even one year is a short period of time. You cannot ensure that you will have enough money when you need it by having a good month, quarter or year but it is possible to seriously jeopardize your ability to have enough when you need it with certain behavior. For example, it is reasonable to think there were people who held on all the way down in 2009, sold at the low and haven't been back since. Anyone actually doing that probably lost the race that day (month).

A comment I've been making here for years has been about without looking, how did you do in some random quarter three or four years ago? It is something that almost no one will know off-hand for the simple reason that it actually doesn't matter in terms of determining whether you have enough when you need it.

To the extent we have more control over our savings rate than our returns, it seems obvious that it would be better to be the guy who lagged the market forever but thanks to a high savings rate has not run out of money when he turned 85 and is still healthy and fit. As far as owning individual stocks or not, I have been saying for years that the products you use are a function of the time you are willing and able to spend on the task.

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