Time is Money

You make money over time. 

All statements regarding investing need to consider this time element and most don’t. 

A statement such as long term returns of 8 percent are meaningless because there is no time frame attached to “long term” - is that 5 years? 10 years? 30 years? 

The older I get the more I understand that most statement about stock market returns are devoid of the time aspect and this can confuse people and lures them into making mistakes. 

The principles are designed to alleviate issues surrounding time. 

Paradoxically we humans get stuck in the present but don’t take a broader perspective of what that entails. What you are feeling at any point in time is only temporary. 

This is important because it helps us understand that at any point there is no reason to be attached to that specific feeling or thought. It will be gone in a short space of time. 

Looking at your portfolio generates emotions and they can be happiness or sadness or regret. But when prices changes so rapidly with high volatility, it really change your emotions. 

The broader point is that at any one time, your portfolio’s return is fleeting. It is the same with property values, just less obvious. The important part of investing is knowing that changes happen and you have a strategy to deal with them.  

This is why we have developed 4 thought principles and 4 action principles. They are connected but the critical element is thinking and acting over time, so any emotions at any one point in time is not relevant.  Systematic investing is still the way to generate superior returns over time.

A strategy that works over time should account for those market moves where stocks rise and fall. Thanks to the finance industry, we seem to have an optimism bias and in broad terms this is correct as we know markets rise over time. But there are substantial periods of time when markets don’t rise and if our strategy is works in rising markets then we will experience sub-optimal results. The finance sector will show that over 20 years or longer, you wont lose money in the stock market. However, what they don’t say is the return vary considerably and on some occasions returns are basically flat meaning over 20 years you will have essentially made no profits. 

A better strategy is to recognise that markets rise and fall over different timeframes. It is also important to realise that timeframes are personal. At 62, my timeframe is different than someone at 30, but that doesn’t mean we should have different strategies. The market rises and falls and cares none for your personal circumstances. The market is still there long after you leave it. 

That is why we teach investors about the 8 principles but also about the importance of time. 

A permanent strategy that makes positive returns over time is one that neither captures all the upside nor all the down side. But that requires you take a time perspective realising that your portfolio will rise and fall in the short term, but if you are doing it correctly, rise over the long term. Avoiding the losses is the key to successful investing.

This is difficult for most of us because we get stuck in the present moment but fail to have an understanding of the underlying principles regarding time. 

The most successful investors have a strong understanding of the role that time plays in delivering returns. Take some time to think about time and it will make you a better investor.