Show me an investor who wants great returns right now and I’ll show you an investor who wants persistently great returns while avoiding losses too. This strategy has been pursued and promised since the dawn of time.
The problem is it doesn’t exist. You can’t have it both ways but people continue to chase the dream.
In the Luncheon Speech I referenced a few days ago, Peter Lynch was asked a question on shareholders rights and whether shareholders should be more involved in business decisions. Here’s his response (emphasis mine):
I think there should be disclosure of what people are getting paid. There should be disclosure of how many shares they own. But I don’t think we should be deciding whether they should make this acquisition or whether they should expand this plant.
When you get too involved in running a company – it’s very complex and a lot of great companies have made a lot of decisions you haven’t heard about because they decided not to do something. Some of the best decisions they did do was to not do something. And if they’re under all this pressure from shareholders – of what to do and what not to do – they’re going to take their eye off the ball and they’re not going to be able to run the business. Companies are doing well because they look – the companies that do well, look out five, six, seven years and some decisions they make, may not be the right thing for the next year.
Lynch points out that shareholders often want immediate results, which comes at the expense of the long term plans of management.
Great management does the opposite. They want the best long-term results, which often comes at the expense of next year.
Obviously, leaving these types of decisions up to shareholder can hurt the business. Not putting it to a vote, not letting the shareholders decide, not basing decisions on next year improves the company’s chance of longer term success. It also happens to be in the best interest of the shareholder’s long-term success.
Of course, shareholder is just another word for investor.
You can do what’s right for right now or you can do what’s right for your time horizon. Sometimes those two are the same thing. Most of the time, your time horizon is years to decades beyond today. So you’re stuck with a choice.
What’s seems right in the short term is often wrong for the long-term success of a plan.
National Press Club Luncheon: Peter Lynch
- The Downside of Managing Downside Risk – Morningstar
- When Holding is the Hardest Part – A Wealth of Common Sense
- Index Funds Are Finally Sexy. What a Shame. – BloombergView
- Bonds Are Different: Active Versus Passive Management in 12 Points – Pimco
- Most of Us Would Prefer Not to Know Whether Bad Things are Going to Happen – Research Digest
- Grantham: The Rules Have Changed for Value Investors – Wealth Management
- The Truth About Earnings and Stock Valuations – BloombergGadfly
- The Dividend Growth Myth – M. Faber
- Academic Factor Exposure vs Fund Factor Exposure – Alpha Architect
- Why This Value-Investing ‘Buy’ Signal is Out of Date – Chicago Booth Review
- Ten Year Futures – Benedict Evans
- Deep Learning Is a Black Box, but Health Care Won’t Mind – MIT Tech Review
- Now THAT was Music – Aeon