The enemy of long-term success in investment management is short-term thinking. Whether it’s something good or very bad, rarely does anything that happens today in the financial markets or economy matter. Most moments won’t even be remembered a year from now. Often a client or prospect will come to a meeting to discuss long-term wealth management and that client is armed with scary news that he or she saw that morning on CNN or financial business networks.
Investors need to remember that little of what is presented on CNBC or Fox Business is actual news, and most of it will only help to derail their long-term financial success. Remember that everyone on a television screen is selling something. The networks sell commercial spots. The anchors sell their own broadcasting skills, hoping for promotions or more pay. The pundits sell the expertise of their advisory services. Public company managements sell the benefits of buying their stocks. Stock analysts sell their own brokerage company’s service. Politicians sell themselves to their constituents. Fund managers sell the virtues of stocks that they already own.
There is nothing wrong with all this; it can only hurt an investor’s success if he tunes in to the financial news channels every day looking for objective advice or something new to worry about. Investors who are successful over the long-term drown this noise out. While many fearful investors have a long investment horizon of twenty to thirty years or more, their minds may only focus on what iceberg CNBC says we may hit tomorrow or next week. While television guests may be intelligent, absolutely nobody knows what will happen tomorrow, next week, or in a year. What we do know for sure is that except for a few short, temporary downturns, corporate profits in the United States have steadily grown for 240 years.
Our population will continue to grow. Productivity will continue to increase and be led by advancements in science and technology. Stocks are the best place to invest money for future growth of capital. Since 1802, stocks have produced average annual returns, net of inflation, of 6.8 percent, compared to 3.5 percent for bonds, 2.8 percent for T-bills, 0.55 percent for gold and -1.4 percent for the dollar. Given that stellar long-term record of growth, attempting to time the market based on short-term fears is a fool’s errand and can only hurt long-term financial success.
