This view of the markets and the economy has allowed me to step back from the
day-to-day machinations of the market, the CNBC gurus with their pitifully shortsighted take on the market, and newspaper and magazine articles predicting the next catastrophe. With a long-enough time horizon, an investor develops a clarity about the investment process and starts really looking at the companies he or she is investing in. The noise gets filtered out and the panic dies down. He or she looks at the pluses and minuses of the business that he or she has invested in, not at Alan Greenspan's next pronouncement. This approach also leads to a more rational asset allocation, which in my humble opinion, forsakes bonds and income-producing investments for equities for the young investor with twenty-five or thirty years or more to save for retirement.
Since investors who try to time the market underperform buy and hold investors, why bother? The long-term trend of the market has always been up, though there have been plenty of bumps in the road. Everything I have seen suggests that stocks are a far superior investment vehicle over extended periods of time such as decades.
I can rest easy about the "Internet bubble" with this long-term approach. A business-oriented rather than market-timing investment plan immediately will bring the investor to the conclusion that there is no real bubble. "The Internet" as a business concept encompasses such a large variety of businesses that are fundamentally so different from one another that generalizations are going to be inaccurate. Are a lot of companies involved in the Internet going to fail? You betcha. Are some going to make a lot of money and be superb stock investments over the next 10-20 years? Of course.
An investor who puts money into Cisco, Microsoft, Oracle, Yahoo!, and Amazon.com today will likely have a huge appreciation in stock values 20 years from now and even a 100 shares of each could become a seven-figure portfolio by 2020. An investor who puts money into thisweek.com will likely have a piece of wallpaper.
That's the way it has always been. Once there were a lot of automobile manufacturers, now there are a handful. The bubble didn't burst, but gradually most of the companies went away. A savvy investor, doing her homework, can make reasonable guesses about who is going to survive at an intermediate stage of development and invest accordingly.
Now I realize that the concept of buying and holding a few good stocks over a long period of time doesn't make for exciting journalism, but it does make for a secure future. Of course, there is always the chance of a prolonged downturn in the market and the economy, but I think we have learned some things this century and I don't think that the Great Depression is apt to be repeated unless we have a highly destructive war or major ecological disaster.
Not only am I calmer but I can laugh at Bob Pisani of CNBC with his 15 minute time horizon. So even you Fools need to loosen up a little, teach the virtues of long-term investing, and quit scaring your readers so much with doomsday pronouncements of the next downturn.