The Fallacy of the Long Term

When we invest, we are investing for 10, 15, 20 years. You may look as if you are making a big loss today, but you have not borrowed money to invest. You will ride the storm, the company recovers, your shares go up.

Lee Kuan Yew, 6 Feb 2009

The company dies, your shares are not worth the paper it is printed on.

Who knows.

More often the long term is either an excuse for a bad short term decision, or a hopeful, but de facto, position after that decision's outcome is known.

A long term investment is planting a fruit tree which takes many seasons to bear fruit, and you are sure the fruit remains highly valued and in great demand even then; and it will more than pay up for all the costs in the many seasons of care and tending, and the opportunity costs incurred to do so.

But a long term investment is not buying a land to plant padi only to realise that the water have stopped and you can only convert that padi field to an orchard.

A long term investment makes sense and is rational only if it gives better returns than a short term one.

But who can know the long term?

And if you cannot know in the short term, what makes you a better player for the long term? And if indeed you can see the long term why not go out to 50 years and hundreds of years and not stop at 10 and 20 years?

The only thing knowable about the long term - apart from everyone being dead - is that a coconut tree takes a few seasons before it bears fruit. But I can never ever really know that the world still needs coconut as much as it needs today and tomorrow.

Even if it is, or seemingly, obvious and indisputable that the world will forever need energy, I am still not certain that I should invest in developing an oilfield or a coal field. It is even less certain that I should invest in green energy. And the uncertainty is not so much that these things wont happen nor that energy in all forms will always be in demand, but whether I make better returns than going the short term.

And a long term losing investment is nevertheless always good, as long as it is profitable just the day before you redeemed it. So the long term can be as long as it is necessary, but, of course, not before you are dead.

And if your needs for tomorrow are always met, what need for investments - long or short - then?

Consider the ravens: They do not sow or reap, they have no storeroom or barn; yet God feeds them. And how much more valuable you are than birds!

Jesus Christ