Holding On

Are you a long-term investor?

Illustration: Gerd Altman. Source: Pixabay

Everybody says they are. When the market is high, they claim that they’re not worried about a few small fluctuations. But if stocks fall 5%, you’d think we just declared war. They everyone wants to get out, but only until the market heads back up. Then they’re long-term investors again.

We don’t think about what we own, we only think about what we’ve gained or lost. For example, when folks get a quarterly investment statement, they don’t look at their total wealth. They look at how it has gone up or down. And we worry more about the downside than we’re excited about the upside. Psychologically, it hurts more to lose something than it feels good to win. That’s why the status quo tends to be more popular: change always implies that something could go wrong – something that’s working right now.

Risk aversion. Source: Wikipedia

This gives truly long-term investors an edge. If we can look past the squiggles and jiggles, we can invest with broader financial and economic trends in mind. For example, right now the “earnings yield” of the broad market is about 5½ %. That’s the earnings of an average company divided by its market capitalization. And firms can still borrow money at 3½ %. It makes financial sense in this environment for corporate treasurers to issue bonds to buy back shares of their companies. And that’s exactly what’s been happening for the past seven years.

The rewards of long-term thinking are better returns and the peace of mind that comes from being on-track to reach your financial goals. But don’t be too long term. After all, as John Maynard Keynes once said, in the very long run, we’re all dead.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-08-22T06:05:23+00:00August 22nd, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

Leave A Comment