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Long Term Thinking

There are many people who say they are long term investors, but are they long term thinkers?

If you turn on a major business news channel at 9:30 am eastern time you hear the clanging of the opening bell at the New York Stock Exchange and the announcement that from the “business center of the world… “or something similar.  There are lots of lights and noise and general excitement …much like a casino.  This gambling atmosphere can make a person who owns stocks nervous.  “What if the stock market goes down and I “lose” money?  That is where it is critical that if you invest in companies, you won’t need the money for at least 8 or 9 years.  That will allow a time frame for you to weather the short term ups and downs.

This is where a seasoned and thoughtful portfolio manager can earn their fee.  Before an investor makes an investment in companies, their portfolio manager should explain how it is like an airplane trip or a boat trip. The pilot / captain should warn you that there could be some “turbulence” on the trip but that they have been on many such trips and everything will be ok. The attendants on a jet care as much about their own lives as you do yours and they have a lot of experience with turbulence.  So, if they don’t appear to be concerned about the turbulence, why should you?

What if you turned on the stock market news and the announcer instead of reporting that the market was up or down … blah blah blah” for the day, they said “the stock market is up 11.2% average return over the last eight years”?  The change from day to day would be very small.  It would better fit the time frame of an investor however, it wouldn’t  make advertisers very happy  as the day to day changes would not be very exciting.

In October of 1987 the Dow Jones Industrial Index fell 22.6% in one day. It was named “Black Monday” for having the largest single day percentage decline in the history of that index.  Yet if you only looked at your statement once at the beginning of the year and again at the end of the year, you would probably would have seen a small gain..  The market had gone up a lot before declining in October.  This speaks again to the difference between short term and long term “thinking”.

The key is to analyze your cash flow needs and if you have money to invest long term then stocks are a great alternative.  Then “think long term”.  Expect ups and downs some of which will be significant.  Don’t let the emotion, generated by short term “noise”, dictate your actions.

Oh yes.  It helps to use a portfolio manager that has the knowledge and experience to help you with this.