As technology has made things quicker and faster, we have become conditioned to want things now. Twitter is a perfect example of this as are the 24-hour news channels. With Twitter, news breaks instantly and goes viral. The problem with this is that there is no fact checking. Just look at all of the tweets about dead celebrities that go around.
With the 24-hour news channels, it’s the same thing. The moment something happens, a reporter needs to be on the scene and people need to be interviewed. This causes two problems:
- First, you have people that speculate on what happened/is happening. When the truth of what happened comes out, conspiracy theorists go to town, citing the original reports, which were never fact-checked in the first place.
- Second, you have the news channels trying to find experts to talk at length about situations. Many times, the channel is so desperate for experts, they don’t do any background check on the person on the phone. Many times, like in the case of the “OJ Chase” it ends up being a person from The Howard Stern Show.
The Need For Instant Gratification Is Everywhere
There is no place that is safe from the desire of instant gratification. If traffic isn’t moving, we get mad, needing to know why we are stuck. If the car in front of us isn’t moving fast enough, we have to get as close as possible to show them they are driving too slowly. If we call up a customer service line, we get mad when we are put on hold. Heck, it’s healthy to lose up to two pounds per week yet if we haven’t shed 35 pounds by the weekend, the diet obviously doesn’t work.
I could go on and on about weight loss too. Workout DVDs are getting shorter and shorter. Did you know you can get six pack abs at your desk by using your stapler two minutes a day? Just tighten your core as you staple those papers and you’ll be a fitness magazine cover model in about a week!
Even the stock market is not immune to instant gratification.
Stocks And Instant Gratification
We all need to get rich quick. I browse investment forums regularly and always see posts by new comers asking what to invest in to make $100,000 quickly. I tell them to take $50,000 and fold it in half (I can’t take credit for that joke, I heard it somewhere).
Many investors feel this way. They will look at the prior year returns and invest in the mutual fund that returned the most last year. When they don’t see their money quadruple by the end of the week, they call the fund a dog and jump to the next fund on the list. They are committing the biggest financial sin: not investing for the long-term.
The problem isn’t only with investors either. It’s with the companies whose stocks are traded as well. The Board of Directors and stock analysts want to know if the company is going to hit its quarterly target. If it doesn’t, the stock drops and the CEO gets fired. I’m no expert, but it takes time to turn things around in the business world, much longer than just three months. Plus, there are things you cannot control.
Imagine being the CEO of a clothing retailer right now. The temperature on the East coast has been below normal for most of 2015 so far. If this trend continues and it stays cold well into the spring, imagine trying to sell shorts and polo shirts! Not making any sales means you are going to miss your quarterly estimates. Better start networking for your next job now!
Focusing On The Long-Term
What Boards of Directors and CEOs should be focusing on is the long-term. There is no point in making patches to a foundation so you hit your quarterly goal and get the $10 million stock option. You should be focused on making decisions that will bulletproof your business so that when times change, you can embrace that change and change with them. But they don’t because they are only interested in the moment. Instead of a long-term plan for success, they are forced to adopt a 90 day plan because that is when they need to report earnings again.
It wasn’t always like this. Back in the day, companies looked at the long-term, as did investors. It was common for an investor to buy shares of General Electric and hold it for 20 years or more, collecting nice dividends along the way. But not anymore. The second bad news hits, investors run as fast as their legs will go.
Here is why individual investors need to focus on the long-term. By focusing on the short-term, you are guaranteeing yourself a 2% annual return. That doesn’t even beat out inflation! When you focus on the long-term, you ignore the hype that others, including the news and Wall Street, are trying to get you to act on. Once your emotions enter into your investments, you are guaranteed to lose. If focusing on the long-term is hard for you, consider an automated investing service.
There are a few other tips, along with focusing on the long-term to improve your odds at investment success:
Be Conscious of Costs: the lower the expense ratio you pay for your investments, the more of your money that stays invested in the stock market, allowing for compound growth. The easiest way to see how much you are paying in fees is to sign up with Personal Capital and use their 401k and Portfolio Fee Analyzer. They are like Mint.com, but more geared toward investments. It’s 100% free and allows you to see all of your investment accounts in once place.
Diversify: One sector may be “hot” today, but chances are it will be cold next week. You don’t know what is going to perform well and what isn’t. Just look at these charts for proof. Your best option is to create a well-diversified portfolio and stay invested. Need help creating your portfolio? Check out my post on model portfolios.
Have A Plan: If you don’t know where you are going, how will you ever get there? The first step to investing success is having a plan. This plan will help keep you on track for the long-term so that you don’t let your emotions suck you into a bad decision. When you do get emotionally, you can refer back to your plan to help keep things in perspective.
The bottom line is you have to stop looking at the short-term when it comes to investing and embrace the long-term. While CEOs will continue to focus on hitting their short-term estimates, you need to learn to tune out this volatility and look long-term so that you can grow your savings. Learn to see the short-term dips as buying opportunities and nothing more.
Remember, the long-term trend of the stock market is positive. With more people focusing on the short-term, there will be more bumps along the way. But if you can look past this, you can be a successful investor.
If you want a guided path to investing success, pick up my book, 7 Investing Steps That Will Make You Wealthy. It’s only $10 and is a quick read that is packed with all of the information you need to know to be a successful investor. It contains the tips and strategies that great investors like Warren Buffett use to be successful investors.