Observations

After 30 years, I met my uncle again in the mid 1990s. A lifetime. The last time we talked I was a teenager. I was spending the summer at my grandparents’ house in Genoa (Italy). Then, he started traveling around the world as captain of luxury liners. I moved to the USA and he settled in New Zealand.

When we met again in Rome, we walked leisurely through the stylish streets near the Spanish Steps. Like in an elegant ballroom, beautiful people strolled -- to be seen and admired for their good taste.

As we talked, we realized we were moving toward almost exactly the same conclusions about life, religions, and systems of life. He eventually told me about his conviction in long-term investing. At that time it was easy to be great believers in long-term investing. The global stock markets were rising since 1982. For more than 15 years at a 20% pace.

Of course, I mentioned to him that long-term does not exist. The average 9% return from stocks is just that -- an average. It is an average of long periods when the market was flat (as from 1928 to 1949 and from 1968 to 1982) and when it was roaring at a 20% pace as in the 1982-2000 period.

Long-term has little significance unless investors realize in which period they are living. Is it a 20% per year or 0% per year period? If you are 55 years old and you miss this important decision, your retirement money could be very disappointing.

If you began making plans for your retirement in 1999-2000, expecting a long-term return of 9%, you would be very disappointed by now. Many retired people had to go back to work because their investments were decimated after 2000.

It is difficult to accept that long-term does not exist. It is a tempting concept. It is a lazy way to make money. But you and I know that there is no lazy way to make money. Like all the formulas to make money they are bound to fail. Like …”over the long term I’ll be OK.”

(This Observations appeared in the 7/28/03 of The Peter Dag Portfolio.)

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year by Timer Digest

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