Almost Everyone Has this Advantage But Few Use It

Fingers walking up on stacks of coins

In 1996, scientists got the idea to hide a clock in a mountain.

This was no ordinary clock.

It would be a little over 18 meters tall, costing millions to put together.

The plan was to build the clock to run for the next 10,000 years. Whether humans will still be here won’t matter all that much.

The clock works on gravity and sunshine. As long as those two constants still exist in the next 10,000 years, the clock should be able to keep accurate time.

Jack Forster called it a Grandfather Clock on steroids.

Why build a clock in a mountain in the first place?

The foundation which designed and built the clock, Long Now, wants to encourage long-term thinking.

Instead of focusing on next quarter’s earnings, the upcoming election or needless multi-tasking, Long Now wants society to adopt long-termism.

Some sort of balancing corrective to the short-sightedness is needed-some mechanism or myth which encourages the long view and the taking of long-term responsibility, where ‘long-term’ is measured at least in centuries,’ founding member Stewart Brand writes.

And if you adopt the same mindset — long-term thinking — I assure you, you’ll do far better in the market.

What you’ve got over Buffett

Warren Buffett. He’s arguably the best investor ever. Starting his career under the father of value investing, Ben Graham, he developed the skills to slaughter the market over the next few decades.

When young Buffett was running his partnership from 1957–69, he beat the Dow Jones every year. Giving Buffett $50,000 in 1957, you would’ve received almost $1.4 million back in 1969.

After closing his partnership, Charlie Munger was the next turning point in Buffett’s life. It was Munger that convinced Buffett quality was worth paying for.

To this day Buffett continues to pay reasonable prices for wonderful businesses.

Not only does he have decades of knowledge, he’s also got billions at his fingertips. But there’s one thing Buffett doesn’t have much of — time.

Assuming you’re younger than the 87 year old investor, you’ve got time on your side. It’s your ultimate weapon in the market. And it’s something investors like Buffett wish they had more of.

Let me explain why. 

Turn $10,000 in $130 million!

Imagine you only had a time horizon of 6–12 months. In that time, the stocks you pick had better go up.

Which stocks would you choose?

Would you pick stocks that are cheap, but might not be revalued upwards in the months ahead?

Or would you pick the high flying stocks, rising higher on momentum?

If the goal is to pick stocks that will go up in the next few months, the latter makes the most sense. And for some money managers, this is their reality.

They need to perform well, always. Or they risk money flying out of their fund.

But an investor like you doesn’t need to adopt such a short-term mentality.

Of course, you wouldn’t complain if your investments rocketed up in the next few months. Who would?

But you can wait for gains, up to three or five years if need be.

Why is time so important?

I’m sure you’ve heard about compounding, the eighth wonder of the world.

It’s compounding that has made long-term investors like Buffett billionaires over time.

If you can compound your money at 26% annually, you’ll double your investment every three years, triple it by five and make more than 10-times your money within the decade.

The longer time drags on, the bigger the gains become. For example, say you invested $10,000 earning 26% each year in your 20s. By retirement age you’d have a fortune of more than $130 million.

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But who wants to wait that long?

The sad truth is, you really only have three options to make hundreds of millions. You can start a business and take it public, win a $100 million lottery prize, or invest your cash for the long haul and let compounding take effect.

But what if you only want to make a million, not hundreds of millions? A couple of years and a few high returning businesses should do the trick.

I’m not about to tell you that you have to wait decades to enjoy the fruits of your investments. It’s your money after all.

But it’s worth considering having a longer time horizon than next quarter or next year.

By all means you could have a punt, try and get lucky. But a longer term investor would keep a majority of their wealth in stable, high-returning companies.

These are not necessarily Blue Chip stocks (most of which are not high returning). They’re businesses that can continually grow earnings due to an advantage they enjoy.

With time, you’ll usually find long-term investors in a much better position than short-term speculators.

Kind regards,

Härje Ronngard,
Editor, Money Morning

Harje Ronngard

Harje Ronngard

With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.

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