I can google anything and get a list of results in less than a second. If I click one of those links and the site takes too long to load, I’ll likely leave before I see it. How long is too long? Two seconds.
Let that sink in.
As a site owner, this will drive you crazy trying to optimize for speed. But just based on the stats, it’s insane. Most people will not wait an extra second or two for results they want.
That level of impatience is nuts. Yet, I’m sure many of us have done it.
We’ve conditioned ourselves to expect quick results. The internet is a glaring example of this. It speeds up our ability to get results fast. But it also hastens our impatience.
What does that mean for investors? If people won’t wait a few extra seconds for a website, how long will investors wait for a decent return on an investment?
My last post got me thinking about this short versus long term, fast versus slow viewpoint. I’ll repeat an extended version of Shahan’s quote:
Most human beings have limited attention spans. A typical sports event or business meeting or college class is about an hour. At the end of that time the superior team “prevails,” or the subject is “covered.” With such intervals considered normal, isn’t it logical that most investors or clients will expect investment skill to be manifested rather quickly? What is so special about money managers that they should require more than three months, or at most a year, to prove their worth? Sensing that the trial period is a short one, isn’t it understandable that professional managers then gravitate toward securities that are popular and in strong uptrends, and avoid the unpopular and languishing? But isn’t this precisely the opposite of the orientation used successfully by these value-oriented investors over the long term?
It may be another of life’s ironies that investors principally concerned with short-term performance may very well achieve it, but at the expense of long-term results.
In Shahan’s view, the two are mutually exclusive. I tend to agree.
Investors, basically, have the choice of fast results or slow results, short-term performance or long-term performance.
Wall Street made its choice years ago to focus on fast results and the market followed suit. The next quarter became more important than next year, which was more important than the next ten years.
Indeed, fast results fit with Wall Street’s business model too. When you’re paid by the transaction, it’s hard to make money off of people willing to wait. Churn is profitable. Patience is not.
As Shahan suggests, the fund managers job is nothing more than a renewing three-month trial period. They chose (forced into?) fast results too.
Of course, all of this conveniently fits with normal human behavior.
The problem with fast results is there’s not much room for error. A fund manager needs to be perfect every three months or investors will lose interest. That’s a recipe for failure.
I believe slow results offer a big advantage. There’s certainly less need to be perfect since the margin of error shrinks as your timeframe widens. In other words, good fast results are hard to come by. Good slow results are more likely to happen.
Yet, time is an edge few investors act on.
So why does everyone focus on the next quarter yet we measure successful investors by decades? It turns out quarterly, even yearly, is a poor yardstick for success.
- Howard Marks And Joel Greenblatt Preach The Gospel Of Patience – Forbes
- The Incredible Shrinking Universe of Stocks (PDF) – M. Mauboussin
- Think Global to Avoid Shrinking U.S. Stock Market – B. Carlson
- Don’t Underestimate Emerging Markets – L. Swedroe
- Could This be the Most Influential Publication in Asset Management? – KraneShares
- The Behavior of Stock Market Manias – Base Hit Investing
- The Panic of 1907 – Federal Reserve
- Busy vs. Productive – M. Housel
- For A Modest Personality Trait, ‘Intellectual Humility’ Packs a Punch – Duke Today
- The Most Common Attitudes That Lead to Bad Decisions and How to Prevent Them – S. Parrish
- The Wall Street Informant Who Double-Crossed the FBI – Bloomberg
- How Aristotle Created the Computer – Atlantic