For many Canadians, "long-term investing" is one of the casualties of the market events of the past year.
Not long ago, people prided themselves on being long-term investors - of being patient and taking the long view on their investing decisions. They looked for guidance to Warren Buffett's phrase: "Our favourite holding period for a stock is forever."
By contrast, today "long-term" is increasingly a dirty word that financial advisers and money managers use at their peril.
"Long-term investing are weasel words the investment industry uses to avoid accountability" commented one investor recently.
Another investor said: "When money managers talk about taking a long view, I tune them out right away. That's just a cop-out and an excuse to abdicate responsibility for results." When I talk to Canadians these days, a remarkable number go online to look at their portfolios over their morning coffee.
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It's not that they're necessarily going to do anything as a result - they're typically doing this out of simple curiosity and because they can.
The pros of short-term view
There are some obvious advantages to a short-term view.
Focusing on short-term results always lets you know where you stand.
It can make you feel good when you're up.
Keeping your time horizon short means you don't have to wait to know if you're getting results from a financial adviser, money manager or investment strategy you're pursuing. You can change course quickly in response to market events.
And then of course there's the well-known expression "In the long run, we're all dead," from John Maynard Keynes, considered by many to be the most influential economist of the 20th century.
Frequent trading perils
Offsetting these pluses to a short-term approach are just two negatives - with a huge impact.
The first negative relates to performance.
The track record of investors who try to get into and out of the market to take advantage of short-term swings is abysmal - that's equally true of professionals managing other people's money as it is of retail investors managing their own.
This is backed up by research by Terrance Odean and Brad Barber of the Haas School of Business at the University of California. Granted access to trading records at one of the U.S. online brokerage firms, they saw an inverse relationship between frequency of trading and returns - the more investors traded, the more likely they were to lose money.
Their conclusion: "Excessive trading is hazardous to your wealth."
Upping the stress ante
The second negative relates to the stress that short-term investors experience - stress that can cause even the best-crafted investment plans to be abandoned.
One veteran money manager recently described today's fixation on short-term results as a "cancer that does more damage to financial health than real cancer does to physical health."
The verdict on the relationship between time and market performance is clear - in the long term, time is your friend, but in the short term it's your enemy. That's because the shorter your time frame, the more likely you are to be down when you look at your portfolio.
Using the United States as an example, since 1926 investors who looked at returns over a five-year time frame made money almost 90 per cent per cent of the time. Change the time frame to yearly and you made money in 70 per cent of years.
Look at your statement daily and your chance of making money goes down to 50 per cent - essentially a coin flip.
A final word
The last word on taking a long-term view comes from Zhou Enlai, Premier of China under Mao Zedong from 1949 to 1976. Zhou was an advocate of normalizing relationships with the West and helped orchestrate U.S. President Richard Nixon's historic visit to China in 1972.
Having studied in France, he maintained a life-long interest in French history. Knowing this, U.S. Secretary of State Henry Kissinger is said to have asked him his opinion of the impact of the 1789 French Revolution on Western civilization.
Zhou paused, reflected for a moment and, so the story goes, answered: "It's too soon to tell."
Your time horizon is unlikely to be quite as long as Zhou Enlai's. That said, the one thing that many investors can do to increase returns and reduce stress is to extend their investing time frame.
Warren Buffett has an unparalleled track record with an annual return of 20 per cent going back to the 1960s, twice the industry average. Despite several periods of multiyear underperformance, if you'd paid $8 for a single share of Berkshire Hathaway in 1962, today that share would be worth over $100,000.
The final words on pundits who make predictions on short-term market movements are his: "Market forecasters exist to make fortune tellers look good by comparison."