Is short-termism a curse of the modern mindset? It could be. The world and the way in which we live is moving at a faster pace than ever before. We expect and demand information instantly and ultimately if we do not get what we need we are left disappointed. This is nothing new, we have all been living in this manner for many years now but is it causing us to have a natural bias towards only favouring a short-term concept, solution or indeed investment?
I feel compelled to write something in this area as I have noticed a distinct shift to an increasing lack of patience in the financial services industry. We have an overwhelming wealth of data which suggests equities outperform the majority of other asset classes over the long term yet investors are becoming more frustrated if they have not made the returns they are looking for over just a one year period or even just a few months. What I have found to be particularly interesting is when expectations are set at outset, investors might begin by saying ‘If I can achieve a greater return than my high street bank or inflation + X I will be happy’ – and I think they genuinely mean this at that point. It seems then to only take a few months before investors are frustrated that they are not making 10% per month, even though the investments they have selected could be well ahead of their original targets. This very quick change in what people expect is something I have categorically seen increase over the last 10 years. It leads me to question, are we becoming less able to think and plan over the longer term and is this an issue which spreads far wider than private client investment? I think so.
A couple of points that immediately spring to mind as to why short-term views are becoming increasingly prevalent in financial services could be the strong recent performance of the major equity markets and in particular the US, and also the glamorous headlines achieved by cryptocurrencies such as Bitcoin. There is no doubting the success of the S&P 500 since the financial crisis and indeed global equities generally. In recent times we have become very used to equities continually outperforming other major asset classes such as gilts, commercial property and more obviously cash that we could be in danger of forgetting the age old reminder that ‘equities can go down as well as up’. I think this bull market has played a small part in adding to the short-termist view of many investors. In my view Bitcoin and the media also have a lot to answer for. Investors have been seduced by headlines stating how a £100 investment in Bitcoin could have made you a millionaire and whilst this may well be the case for the few it is certainly not the case for the many. Last year was a year of great hype surrounding cryptocurrencies and we saw a surge of investors chucking their savings into something they knew very little about, in the hope that it would make them rich overnight. Don’t get me wrong if you are sophisticated or lucky enough to time it correctly there is a lot of money to be made but for the vast majority this is simply not the reality. In the calendar year Bitcoin is down 80% – this has received nowhere near the media coverage of last years rally. I fear it is the money that was made by a few early investors that will live longer in the memory than the funds have been lost by many.
Ultimately the people this is hurting most is private investors who are no longer prepared to look at an investment horizon of 5 years + and who will sell the funds if they do not see immediate returns. The ability to trade or even just view your investments on a daily basis is just too tempting and it is causing people to make poor long term decisions. Individuals are missing out on the greatest asset of longer term investing which is the simple concept of compound growth.