It’s The Way We’re Wired

It’s The Way We’re Wired

“Our favorite holding period is forever.” –Warren Buffett


This is one of Buffett’s favorite quotes and it’s used to get investors to focus on the long-term.

It’s only human nature to pay attention to short-term results. It’s the way we are wired. However, investment enlightenment can only be achieved once you realize that long-term is the only time horizon that matters.

The markets are a wall of worry. There is always something to worry about no matter what the markets are doing. Last year everyone was worrying that the market would fall even further. This year the worry is we’ve risen to quickly and are due for a pullback. This focus on the short-term will drive any investor crazy.

Take a look at the chart below to help put things in perspective. The blue line represents the rolling 30 year returns for the S&P 500 compared to the one year returns ( the orange bars) for each 30 year period. Returns in a given year are all over the map but 30 year returns don’t change that much from year to year.

The key point is that one year returns can make you feel great or terrible but they don’t have a ton of bearing on your long-term results.

Hope this chart helps. Patience and trust in the markets over the long-term are the keys to investment success.