Long-term perspective: best advantage in investing?

Stocks
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This summer, I’ve been diligently reading investor John Huber’s blog. I’ve already linked some of his writings in other discussions, but I think his articles deserve their own thread.

Everyone surely agrees with the observation that there’s little informational advantage in the market unless one focuses on less-followed small companies: the market is efficient, and all new information is quickly priced in. It’s difficult to gain an advantage by having better information than others, but one can accumulate it in another way: by being patient.

Well, this is not new news! Huber reflects in several of his blogs that although almost all investors claim to be long-term in their speech, this is not the case in practice: on average, stocks are held for a few months. People are confused by the constant noise produced by the media and social media, and the flood of unnecessary, irrelevant pieces of information. It’s hard to think about where companies will be in 3-5 years when attention is drawn to daily stock price fluctuations and quarterly results. Huber believes that patience currently offers more advantage than ever before, as most market participants focus on short-term developments.

What do you think? Are you “calm as a cucumber” investors, or do you often change horses in your portfolio?

Here are a few blog posts from Huber on the topic:

http://basehitinvesting.com/what-is-your-edge/

http://basehitinvesting.com/charlie-mungers-most-important-concept-takeaways-from-the-djco-meeting/

“What Happens in Year 4” http://basehitinvesting.com/thinking-differently-the-most-important-contrarian-behavior/

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I recommend the books: Stocks for the Long Run and Future for Investors by Jeremy Siegel, Professor of Finance at the US University. Both describe, through historical data, that one should stick with stocks. And there is a lot of data. Siegel, for example, described well 15 years ago that at this stage Chinese companies are buying firms all over the world…

Another good one, which is only just beginning, is Edward Yardeni’s recent autobiography Predicting the Markets.

And, of course, Buffett’s biography Snowball. Those are my favorites; I’ve read quite a lot.

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In my opinion, long-term perspective is misunderstood as buying and holding a stock for a long time.

In my view, short-sightedness means being forced to act and being impulsive. This can be due to, for example, a poor financial situation, social pressures, or personal temperament. Long-term perspective is the opposite of this. Buy when the opportunity arises and sell only because you see selling as a more rational choice than holding. The “problem” during a boom is that people have unlimited faith in the duration of the economic upturn – that’s what a boom means. But if you take out a consumer loan of 1000 euros, either your future consumption will be 1000+ euros less, or this will lead to a financial crisis. Both result in a recession.

One can ask why people would want to sell their stocks in a stock market crash. There are complex factors behind this, e.g., stock investments made with loans receive margin calls, meaning the lender wants additional collateral. If a person is over-indebted (and almost anyone with debt can be!), this requirement can lead to forced liquidations at the current market price.

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I admit I’m a fan of all alternative metrics! For example, revenue/coders, time spent making pizza, the number or ratio of happy customers and employees in social media, etc. Exactly that, being a “business owner” instead of an investor, in the entrepreneur’s shoes.

One thing I’m really allergic to is bad products or services. In my opinion, bringing clearly secondary goods to the market is such an old-fashioned brick-and-mortar store mentality, which doesn’t consider the company’s future at all. “It will sell, and if not, we’ll just sell it cheaper” - mentality. In the long run, customers and employees suffer from this.

(Hands up those who have to do travel expenses with the software of a certain company that hasn’t performed so well on the stock exchange?)

As for long-term thinking, there are certainly also justified cases to churn ownership. For example, if you believe you can predict airline stock prices based on oil prices, etc. I personally left my Finnairs in the portfolio, even though it’s a bit annoying :wink:

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"I believe that long-term investing is misunderstood as buying and holding a stock for a long time.

In my view, short-term investing is forcing action and impulsiveness."

I completely agree with that. Long-term investing is often long-term holding, but it’s not the same as a portfolio mummifying from holding forever. Long-term investing is more about patience in waiting for the right opportunities and refraining from unnecessary actions.

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I’ve been investing for 3 years, and during this time, about a dozen golden rules guiding my own actions have formed, picked from literature and comments from Inderes experts, and “savored” by myself.

One of them is “Utilize the advantages of being a small investor,” by which I mean that I can patiently wait for buying and selling opportunities without any reporting obligations or time pressure to do “something”…

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That is one of the best advantages a private investor has. There is no need to prove “one’s existence” to anyone by making unnecessary moves. A private investor can also take a healthy distance from the market, which a professional may not have the opportunity to do.

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This text is about politics, but the same applies to investing: more and more of us expect an immediate reward and can’t wait. The hardest thing is to “sit alone in an empty room doing nothing,” as Pascal noted.

https://www.spectator.co.uk/2018/07/the-lost-art-of-patience/

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Regarding long-term thinking: it seems that literacy and the ability to understand longer texts is even under threat for many, following a “use it or lose it” logic. Probably many investors don’t read much either: years ago I read an article that wondered why a company as large as General Electric had its annual report downloaded less than a thousand times! :see_no_evil_monkey: Even professionals don’t necessarily properly glance at them…

A good article about reading, I recommend reading it:

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I can relate to that. Nowadays, after work, I can’t be bothered to read anything. I’d rather listen to podcasts and watch videos and Netflix… Thanks to Inderes videos…

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Cut losses short & let profits run.

It’s not always easy to follow this, as you need a position of several thousand to even bother monitoring them, but every now and then you get around to removing underperformers from your portfolio.

“When, when you see that the company isn’t, isn’t performing, then, then, you know, don’t just hope for the best, but, but, but then, like, get out, so you’ll have time to get back in when things start to look better.” -Da Kurko Heebo

In my opinion, you don’t need to think 3-5 years ahead, but rather a couple of years, and then re-evaluate the situation. If new information comes up in the meantime, then of course it’s worth analyzing it and making decisions based on its impact on the company’s prospects. I myself have dumped some holdings after a two-week or one-month hold when things didn’t go quite as planned. Others I’ve held onto since the very beginning of my investing career.

Your forecasts beyond a couple of years are pure lottery, as anything can happen in between, and they’re updated accordingly. I do the same.

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Good article on the importance of doing nothing sometimes. The crocodile story at the beginning also fits well with investing :wink: https://medium.com/swlh/the-power-of-doing-nothing-at-all-73eeea488b8b?source=email-61e729e491a3-1536639389895-digest.reader------2-0------------------03450c39_060c_4c5f_8020_7e39046cdddf-1&sectionName=top

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Let’s dust off the top of this thread a bit and give this thoroughly brilliant thread the bump it deserves! Thanks @Verneri_Pulkkinen for starting the thread!

Ah, patience, that thing so natural, ordinary, and straightforward to me. Investing is an activity where you can put this to the best possible use. I have always been patient, level-headed, and respectful of my rapidly vanishing adulthood (I can’t be the only one who thinks 10 adult years is a short time..?), meaning I realized during the very first months of my investing hobby that this is how it has to work, too, and I’ve stuck firmly to this steadfastness.

So, in short: small incremental purchases for time diversification into existing holdings, long-term ownership, and time takes care of the rest.

I trust in time, in the changes that happen over time in various areas of life, in the fragility of time and its ever-increasing speed as adulthood progresses. You have to make the most of it, which is why I let stocks (and index funds) enjoy the wonder of time; what’s the rush to realize anything just yet.

My oldest Sampo shares turn 10 next year, I might celebrate this somehow, perhaps, possibly, most likely, probably not, since investing is such a emotionless activity after all. I sometimes make new additional purchases even after holding for 1-5 years when I forget to add to them in between, so there they simmer, gathering dust and maturing even if I don’t pay attention.

My goal is that someday I can use the acquisition cost assumption (hankintameno-olettama) to sell my holdings (excl. equity savings account / OST) for living expenses, fulfilling dreams, realizing aspirations, and general well-being.

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Patience is certainly interesting from an investment perspective, but on the other hand, it means you need to consume considerably less essential information. If your investment horizon is, say, five years, would it suffice to only read the annual reports of interesting companies in their essential parts once a year? If the intention is to trade on a timescale of days or months, one would think it’s enough to analyze the impact of the latest press releases or news. In that case, the big picture would have hardly any impact on decision-making.

Building a very engaging business out of long-term investing is at least difficult, and it’s better to stay on top of current press releases and news. Peter Lynch’s fund was very successful during its existence, but over a shorter timeframe, many investors lost money. On the other hand, some investors might argue that after every crumb of information, one should, in addition to valuation, make new forecasts for the development over the next ten years. And portfolio optimization shouldn’t be forgotten here either.

In Inderes’ coverage, quarterly updates come at least in the form of pre-comments, robo-comments, and analyses. The target price is given for a 12-month horizon, but for some companies, it seems to be updated up to 8 times a year. In addition to the target price, a recommendation is also given, so there is twice as much updating information during the year compared to the update frequency. Try being a long-term owner with that going on if you have, say, a dozen companies in your portfolio.

In the short term, the impact of randomness on returns is significant, and over the longer term, the cumulative effect of daily news can well be close to zero or negative due to trading costs. However, it is probably a good idea for a long-term investor to follow world events and try to identify factors significant to the companies they own and changes in them. In my opinion, patience is a very good advantage for an investor, especially in terms of saving time. Along the lines of: do little, but make significant decisions if you make decisions at all. Investing in an index is, however, a quite viable alternative to stock picking.

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A brief comment on this great thread: long-termism means slightly different things in stock picking versus index investing:

The index evolves all the time, for example, the S&P 500 is quite different today than it was 10 or 20 years ago. In contrast, a stock picker’s portfolio only changes through active decisions—if you do nothing, the companies remain the same. Index investing is therefore surprisingly active investing, it’s just that the investor doesn’t have to do anything themselves, things are handled for them.

Warren Buffett is considered a long-term Buy & Hold investor, but his stock picks have also evolved over the years; there is no longer IBM or Taiwan Semiconductor, but Apple and Alphabet, bank stocks have changed, etc. (though Coca-Cola has remained a long-term investment).

So, long-termism doesn’t mean total passivity, but rather an appropriate investment horizon and long-term decision-making, without panicking with the daily news flow. Index investing is the easiest way to handle long-termism, as you don’t have to make decisions yourself.

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