The Long-Term Investing Myth

During my morning routine of caffeine supported information injections, I ran across several articles that just contained generally bad investment advice and poorly formed analysis. Each argument was hinged on the belief that bull markets last indefinitely, bear markets are simply an opportunity to “buy” more, and investing for the long term always works. One such article, in particular, was this gem published at MarketWatch:

“But it’s important to remember that in the grand scheme of things, this sell off is a mere blip.

Kieron Nutbrown, former head of global macro fixed income at First State Investments in London, has just the reminder to help investors take a step back and look at things from a long-term perspective.

The chart, which first appeared on his blog, follows the path of global stocks over the past 500 years and demonstrates how prices have fared through wars, revolutions, and depressions.”


See, it is really quite simplistic, just buy the dips.

Unfortunately, investing doesn’t work that way because this chart ignores both the value and quantity of the one commodity that we can not acquire or create more of – “time.”

While the markets may have recently hit “all-time” highs, for the majority of investors this is not the case. This is because, as I addressed last week, investors tend to do exactly the “opposite” of what they should do when investing. To wit:

“Unfortunately, investors rarely do what is ‘logical,’ but react ’emotionally’ to market swings. When stock prices are rising, instead of questioning when to ‘sell,’ they are instead lured into market peaks. The reverse happens as prices fall. First, comes ‘paralysis,’ then ‘hope’ that losses may be recovered, but eventually ‘capitulation’ sets in as the emotional strain becomes too great and investors ‘dump’ shares at any price to preserve what capital they have left. They then remain out of the market as prices rise only to ‘jump back in’ about mid-way to the next market peak. Wash. Rinse. Repeat.”

This is shown in the flows of money into bonds/equities by investors according to the research from ICI. (Note: Beginning in 2014, ICI began reporting on ETF fund flows which have been included into the cumulative.)