The Long, Long-Term

“We’re not talking about a crisis that will unfold over a year or two; this thing could come apart in a matter of days. And if it does, the whole world will suffer.” (“An Impeccable Disaster,” Paul Krugman, September 11, 2011)

Given comments like the above, from Nobel-winning economist Paul Krugman, in today’s New York Times regarding the European Union, I thought it would be helpful to consider commentary from several experts focusing on the long-term. While the press in general is geared toward focusing readers on the immediate future, the addition of a voice as credentialed as Krugman’s to the short-term chorus warrants compensatory reflection on considerably longer time horizons.

The first such expert is Richard Sylla, professor of economics at NYU’s Stern School of Business. Interviewed by E.S. Browning in today’s Wall Street Journal, professor Sylla articulates his view of the market based on 220 years of history.

“People ought to take a longer view and think in terms of years and even decades,” Prof. Sylla says. “Most people are quite pessimistic right now. I am saying: ‘The market may go down from here. It may go up. But if you look at the long sweep of history, this seems like a good time to buy because the average return is down near the bottom’ and is likely to go up.”

Another financial market expert, Vanguard founder John Bogle, sat for a recent interview, with Jason Zweig of the WSJ. In this discussion, the father of the 500 Index Fund succinctly summed-up his view on long-term investing:

“Diversification is not only the first important thing investors should think about, but the second and the third, and probably the fourth and fifth, too,” he said. He explained that it is worth taking the risk of betting against the collective judgments of other investors only when you know far more than they do about an investment.

For the buy-and-hold philosophy to work, it must be applied not just to stocks but across an entire portfolio, including bonds and other assets, he said. That is because the stock market is, above all else, “spasmodic,” he said.

In case you discount Sylla’s view because he sits in the ‘ivory tower,’ and eschew Bogle’s view because he founded Vanguard and therefore perceive him to be biased toward indexing as an investing strategy, consider the following comment, also reported in today’s NYT:

“The best thing people could have done last month is nothing,” said Alec Young, an equity strategist at Standard & Poor’s Equity Research. “We don’t think that it’s a smart way to manage to be taking the temperature every day because you’ll be trading your portfolio ’til the cows come home.”

An economic historian armed with 220 years of data, a financial industry veteran who founded the largest mutual fund company and an analyst focused on decades of market statistics independently advise focusing on the long term. Of course, how one defines the long-term depends on where one is on life’s timeline, but the common thread here is the urging to look past the day-to-day.

As is often the case, the guidelines for investing can be applied to life in general. Why risk losing the present, by watching the market like a hawk, in exchange for an uncertain future? Marcus Aurelius reflected on this very question. The Roman emperor (of the 2nd century A.D.), wrote in his Meditations (translated by Maxwell Staniforth, Penguin Books, 1964, p.50):

“[T]wo things should be borne in mind. First, that all the cycles of creation since the beginning of time exhibit the same recurring pattern, so that it can make no difference whether you watch the identical spectacle for a hundred years, or for two hundred, or forever. Secondly, that when the longest- and the shortest-lived of us come to die, their loss is precisely equal. For the sole thing of which any man can be deprived is the present; since this is all he owns, and nobody can lose what is not his.”

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