Time Horizons
The Investor's Podcast Network
The Investor’s Podcast Network is a business podcast network. Our main show “We Study Billionaires” has 150M+ downloads.
By Matthew Gutierrez · October 6, 2024
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?? It’s a busy time of year — Fed policy is shifting, and the U.S. presidential election is less than a month away.
It’s also a packed time of year on the sports calendar, with baseball playoffs, football in full swing, and basketball about to start up. We’re curious: What teams are you pulling for? Let us know by replying to this email.
Today, we'll discuss time horizons in investing, specifically how they’ve shortened in the digital age.
All this, and more, in just 4 minutes to read.
— Matthew
Quote of the Day
"Wisdom begins in wonder."
— Socrates
Together With Masterworks
Through COVID, soaring inflation, and today’s crushing interest rates, a group of enterprising investors have collectively entrusted one billion dollars from their portfolios to Masterworks’ art investing platform.
Why? Because the contemporary art Masterworks offers—from legends like Picasso and Banksy—has demonstrated a low correlation to the stock market, inflation resistance, and exceptional appreciation potential. Not to mention Masterworks has completed 23 successful exits to date, distributing over $60+ million in net proceeds to investors in those offerings.
These investors didn’t need art expertise to diversify with blue-chip art, because Masterworks does all the heavy lifting, finding artists with appreciation potential (buying <3% of works offered) and then breaking an art offering into shares for you. If Masterworks sells a piece again for a profit, investors get a return. With 3 illustrative sales, Masterworks investors have realized net annualized returns of +17.6%, +17.8%, and +21.5%.*
What Else We’re Into
?? WATCH: 20 rules for markets and investing
?? LISTEN: Betting big on China and bear market lessons with Richard Lawrence
?? READ: Do it your way, by Morgan Housel
Trivia
Asheville, recently hit hard by Hurricane Helene, had been a boom town — how much have home prices there climbed in the past five years?
Time Horizons: Short Term vs. Long Term
Getting rich slowly
Jeff Bezos once asked Warren Buffett why people don't follow his investment advice, especially since it’s so simple. Buffett's response??
“People aren't comfortable getting rich slowly.”
From years to months
For years, the world’s most successful investors have underscored the value of the long-term view. While many market participants think in weeks, months, and years, elite investors often think in decades. “Our favorite holding period is forever,” Buffett has said. “Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.” To the Oracle of Omaha, that’s how compounding works its magic.?
The average time horizon for individual and institutional investors has shortened drastically over the past few decades. In the 1980s and 1990s, many institutional investors — particularly pension funds — adopted long-term strategies. In the 1970s, the average holding period for stocks in the U.S. was about seven years. Yet a gradual, big shift has occurred: The average holding period has fallen to about six months today.
Impatient to patient
Market researchers and analysts say technological advancements and changing market dynamics are to blame. One of the primary drivers of the shortened time horizon is the rise of high-frequency trading (HFT) and algorithmic investing. Advances in technology allow institutional traders to execute millions of trades in microseconds. Individual investors can easily access all kinds of news, pricing, and data at their fingertips 24/7, likely prompting some investors to buy or sell more quickly than they otherwise would.?
A JPMorgan study found that much of today’s volume is driven by short-term trades, not fundamental analysis. JPMorgan found that "only about 10% of trading is now done by fundamental discretionary traders, and the rest is by quant funds, high-frequency traders, and market makers."
The shift has been driven in part by the ability to execute rapid trades at minimal costs and by the rise of quantitative strategies that focus on short-term arbitrage opportunities rather than long-term value. Social media’s rise — Twitter/X, Reddit, TikTok, etc. — has further exacerbated market short-termism.?
Day trading’s popularity soared thanks to social media, meme stock mania, and commission-free platforms. Some participants are less concerned with long-term fundamentals and more focused on short-term gains. As Buffet has said, "The stock market is a device for transferring money from the impatient to the patient."?
Another factor?is the increased pressure and scrutiny on...