A "Tongue in Cheek" article by
Motley Fool Analyst and contributor,
Morgan Housel
Long-Term Thinking: 1800-2013
By Morgan Housel
Long-Term Thinking died last year. His last true friend, Vanguard founder Jack Bogle, was at his side. He was 213 years old.
Long-Term Thinking lived an illustrious life that began at the start of
the Industrial Revolution, when for the first time, people could think
about more than their next meal. But poor incentives and the rise of
24/7 media chipped away at his health. The final blow came when a trader
on CNBC warned that a 10% market pullback -- which has occurred on
average every 11 months over the last century -- could be "devastating"
for investors. "That's it," Long-Term Thinking whispered from his
hospital bed. "There's no more room for me here." He died shortly
thereafter as Bloomberg published its daily tally of how much the net
worth of the world's billionaires had changed in the previous 24 hours.
Long-Term Thinking endured the Great Depression, world wars, and spiking
interest rates in the 1980s. But the last five years proved too much,
as he fought for relevance with cable news, Twitter, and derivatives. He
was hospitalized in May 2010 after pundits lost their collective minds
over a "flash crash" that made a few stock prices freeze up for 17
minutes. "Computers froze for 17 minutes and they literally think
American industry vanished," Long-Term Thinking told his psychiatrist.
"These people are insane."
Fifty years ago, the average stock was held for more than eight years,
according to LPL Financial. By 2010, the average stock was owned for
five days. Fifteen years ago, S&P 500 companies spent more than 40%
of available cash flow on capital investments. That fell to just over
25% by 2007, with the difference going mostly to share buybacks, likely
to boost option-based compensation. "Our culture has an endemic problem
of short-term thinking," Long-Term said in his final speech in November.
"Years have become months, months have become days, days have become
milliseconds, and milliseconds have become careers. However much you
think you're winning in the short run, you're losing in the long run."
Long-Term frequently blamed media. Louis Rukeyser's
Wall Street Week went off the air the same year
Mad Money,
Jim Cramer's daily investment show, debuted. The number of important
financial events hasn't changed since Rukeyser could cover a whole
week's news in an hour -- just the amount of drivel, gossip, nonsense,
and hyperbole. It was too much for Long-Term Thinking to handle. Once
the bastion of rational thought, he became the laughingstock of the
financial world, repeatedly teased for his indifference to candlestick
charts and the 50-day moving average.
Some mourned his passing. Peter Burton, a hedge fund manager from
Greenwich, Conn., said, "It's sad to see him go. Everyone in my field
knows he was right. With our own money, we think years out in the
future. But with clients' money, I have three months to be correct, or
I'm out of a job." Shaking his head, he continued: "The dirtiest secret
in finance is that few of us are incentivized to do what's right. Your
pension fund, your 401(k), and your kids' college funds probably have a
time horizon measured in decades. But you pay me based on how I perform
against my peers every 90 days. It's such a joke."
In lieu of flowers, his family asks that you turn off CNBC and stop checking your brokerage account.
