Video blog – two short messages about long-term investing
This blogpost is short – two short videos about investing from thought leaders I respect. I am sharing them to provide some long-term thinking in the midst of so much short-term news. Understandably, almost all of the news and information we are consuming is about the now, or the near-term.
- How fast is COVID-19 spreading, or could it spread without social distancing?
- When might the economy and businesses open back up?
- Will Doc or Jeff follow Joe Exotic’s trajectory from cage-owner to cage-dweller?
I am also digesting news about such matters, but I am also consciously looking for sources to remind myself about the power of long-term thinking (in particular regarding investing). The following two short video messages are two messages that I’ve found compelling.
The first is an animated graphic showing how missing just a few of the biggest gain days would have led to inferior long-term results. A short-term strategy of trying to time the market runs the very real risk of missing out on the best performance days. The second video is a message from David Booth, the CEO of Dimensional Fund Advisors, the company that manages the investment funds I personally own, and recommend for many of my clients.
Video 1. The effect of market-timing on long-term investment performance
Video 2. David Booth (CEO and Founder of Dimensional Fund Advisors) speaks on Uncertainty and the Coronavirus
John’s thoughts about the future of the investment markets
Making a prediction about the future is easy. The difficulty lies in getting that prediction right. Many people are suffering today, both in health and in the economy. I think there is still ample uncertainty in how this pandemic will play out and ripple throughout the global economy. Since I do not have a crystal ball, I avoid speculating on the short-term movements for the markets. Instead, I lean on the long-term data for how markets have behaved historically. Investing in the markets, over the long-term, has been a sound financial strategy see note [1].
It is interesting to think about the markets as being an inherent prediction. It is the prediction formed by all of the individual actions of investors around the world as they invest or de-invest their money from the markets. Over the last week or so, markets have moved upwards. Investors are predicting a rosier future than they did one week ago. My strategy is to not try and out-predict the market. I will be content to keep my long-term money in the market and follow the collective prediction. I believe in the resilient spirit of people. People will learn, grow understanding, enact solutions. As a global people, we will weather this storm.
In the short-term however, we need to live, eat and keep our shelters in place. My heart goes out to those who are struggling with health or personal finances. In particular, many owners and employees of small businesses are feeling the squeeze. Although the government promises to help through
the CARES Act sound good in theory, the roll out (thus far) does not seem to be smooth.
I am thankful though. Thanks to the efforts of “essential workers” I don’t have to worry about whether my water is clean, whether or not the heat for my house will turn on, if my family will have food on the table, or if a health emergency occurred for us, whether the paramedics would come. The foundational work of society is still being done. I am thankful to the essential workers who are keeping those systems operating – the nurses, doctors, therapists, grocers, farmers, police, firefighters, paramedics, utility workers and others who all quietly and nobly keep doing their jobs. Thank you.
Note [1] – Investing in stock and bond markets carries the inherent risk of losing money. Past performance should not be used to predict future performance. An individual should generally not invest in stock and bond markets until various short-term financial building blocks are well laid. Those include paying off high-interest debt (like credit cards) and holding a decent emergency fund.
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