What is long-term anyway?
Recent market volatility has made many of us jumpy, and many investors agree that this might be a time to show increased caution. But one subject still prompts very diverse opinions: the investment horizon.
We are all a little nervous…
Last year we shared our cautious views in a few articles. But since the market was going up every day, few investors had much interest in getting a little more careful when we entered this unchartered territory. Indexes were reaching all-time highs, valuations were stretching to levels we hadn’t seen since previous bubbles. There was apparently no room for healthy skepticism.
The last few months, though, have brought more volatility, sell-offs, big daily market moves, and a growing sense of increased uncertainty on all fronts.
We recently posted an article discussing the old investment mantra –” Buy the Dip.” The key idea was the we might have gotten too accustomed to the nearly automatic response to every market dip. Traditionally, that has been to buy more stock while prices are down. Today’s conditions, though, might actually be different. This could be a good time to unlearn old habits before we get into trouble.
The response was fascinating. We were a little overwhelmed by how many people read it, and how quickly. Most of all, we were surprised by the feedback we received from a large group of like-minded investors who were curious to read an article spiked with a dose of market skepticism. That has been an unusual experience, and a very welcome one.
A big revelation – we don’t all have the same investment horizon!
We might be contrarian in more ways than one. We always enjoy finding a way to disagree with the consensus. We don’t believe that the very best investment opportunities can be found in optimistic headlines or on lists of “must-own” stocks. When we notice that many investors agree with us on a certain topic, theme, or investment opportunity, we often start to wonder if it’s time to give it a second look.
We’re in what we believe to be the late stage of a long-running bull market that’s benefited from every possible form of external support from the government and the financial press. Our reservations about this market’s continuation are deepening, and an increasing minority of investors seems to agree with us.
What really sets us market skeptics apart, though, is how we assess the investment horizon. As investors, we all have specific checklists of what and when we like to buy. The clients we serve, though, truly define our investment style, based on their circumstances, aspirations, and worries.
In Sicart’s case, we mostly cater to multi-generational family fortunes. This creates huge responsibility, but also provides us with a very long-term investment horizon.
For any stock we pick, we like to allow 3-5 years to deliver the results. Even so, that individual stock decision is made in the timeframe of at least a single generation (or 25 years). Daily, weekly, monthly performance has little importance to us. Even a year is even too short to assess the investment success.
We aim first to preserve, and second to grow a family fortune over many decades. This long horizon gives us time to pick and choose when we invest. We see no reason to chase a tired bull market, and we don’t fear missing out on the very top.
Our greatest concern is a permanent loss of capital, which most often comes about due to poor judgment. Investing in a business whose value vanishes or staying fully invested at the top of an overvalued bull market would be the ultimate error for us.
We won’t ever call the top or the bottom of the market, but there is a lot of room between those extremes that allows us to manage the risk and the rewards to our best abilities.
What’s your investment horizon?
The feedback we have received about recent previous articles makes clear that many investors share our skepticism but may not share our investment horizon.
Because of the timing of the article, some readers thought when we spoke of the “market dip” that we were referring to a dip during the first half of that very trading day. They shared their hopes that the market would turn in the second half of the day.
Others read the article after the market close, and thought we were writing about the day’s dip. Many readers believed we were discussing a disappointing week for the market.
From hours, to days, to weeks, our readers’ envisioned range expanded, though some followed more closely our intended subject, which was the year-to-date sell-offs in major market indices.
A big group of readers, meanwhile, was sharing their outlook for the next few months or even the second half of the year.
These were getting a little closer to what is often considered “long-term investing,” but we were still a little surprised how few were looking at the year-to-date market dip in the context of at least 5-10 years or even better a lifetime of investing.
Some readers pointed out that young investors, putting money into the market regularly, can dollar-average investments over the long run. That sounded like what we think of as a true long-term investment horizon.
What to do?
While a growing number of investors have become cautious after recent spikes in volatility, what sets Sicart Associates apart is the investment horizon we use to make our decisions. We like to think in terms of decades, and generations rather than weeks or years. Thus, we might take very different steps than those whose investment horizon ends at the closing bell each day.
We believe that it’s better for your wallet and your peace of mind to extend the investment horizon from hours to years or even to decades, if the situation allows.
With that newly extended investment horizon, you’ll look at each market dip from a whole new perspective.
This article is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.