It’s infrequently remarked upon in the financial media but many of the keys to success as a long-term investor derive from qualities that are distinctly out of tune with the times – patience, discipline and a readiness to prioritise distant rewards over instant gratification.
In fact, the times we’re living in are almost antithetical to long-term investment. We are overwhelmed by choice. We are told we can have everything we want right now. And, if we can’t afford it, we can put it all on the plastic and worry about paying for it later.
The fact is there’s a ready market for the notion of all gain-no pain. Witness the dieting magazines that promise their subscribers perfect bodies with little expense or effort other than the €5 cover price and sticking reminder listicles on the fridge door.
It works similarly in the investment world. Much of the financial services industry, and the media that serves it, wants people to believe in the idea that investment returns come down to ‘hot tips’ and easy shortcuts. The giveaway pitch is “high returns with low risk”.
A dissenting view about the instant gratification, you-can-have-it-all-right-now economy has been memorably expressed by Charlie Munger, the business partner of legendary investor Warren Buffett and a man known for turning conventional wisdom on its head.
“Waiting helps you as an investor and a lot of people just can’t stand to wait,” Munger once famously said. “If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.”
Perhaps it’s due to the nature of modern consumer capitalism, which runs on encouraging people to pursue an endless and unquenchable cycle of externally generated desires. In other words, the notion of deferred gratification is out of tune with the times we live in.
But the ability to forgo today’s desires for the prospect of longer-term fulfilment is one of the most elemental requirements for success as an investor. Buffeted by media noise and the lure of short-term returns, we have to be able to resist the temptation to tinker.
Again, as Munger put it: “People are trying to be smart. All I am trying to do is not to be idiotic, but it’s harder than most people think.”
Just how hard it is was highlighted in a 2019 report by the UK digital wealth management firm MoneyFarm, which looked at why as a society we seem to find it so difficult to invest in our future wellbeing and are so easily distracted by short-term temptations.
The research found that almost a quarter (21%) of Britons don’t plan for their long-term future at all. And a further quarter (25%) think less than six months ahead. Five years was the furthest that most people (29%) currently plan for.
The causes of this short-termism are many, the report says, including a surfeit of choices and a subconscious view that by opting for one we limit our own freedom. Another factor is that thinking about our long-term future creates anxiety, which we treat with instant consumption.
How do we deal with it? The report recommends a number of strategies, such as imagining the most positive outcome from a change in our financial behaviour and consciously thinking about the biggest obstacles to our getting there.
Another underrated technique is galvanising social support around our goals from friends, family and professional advisers. The need, as Munger says, to wait patiently, to not do stupid things and to stay focused on a long-term goal is hard to do alone.
But the first step is setting the goal and building a plan to achieve it.