Does Wall Street ever learn?

Misguided executives and profit-minded financiers brought our financial system to the edge of ruin last fall -- but now, it seems, they've pretty much returned to business as usual. Many of the same people who helped contribute to the financial crisis are still in charge at leading financial institutions. Risk-taking behavior hasn't changed much, and many "too big to fail" banks such as Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and JPMorgan Chase (NYSE:JPM) have become even bigger.

Short-term thinking is still the order of the day everywhere we look. Fortunately, two of the biggest names in the investment world have unleashed their wrath on the short-sightedness that pervades Wall Street.

Taking aim at the short term
Vanguard founder John Bogle and Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) Warren Buffett recently signed onto a statement from the international nonprofit Aspen Institute, warning that Wall Street's short-term focus is placing our entire economy at risk. More than two dozen high-profile investors, academic minds, and managers, including former CEOs like IBM's (NYSE:IBM) Louis Gerstner and Cummins' (NYSE:CMI) Henry Schacht, signed the statement, which advised that unless managers and investors change their behavior, regulators might have to step into the picture and change it for them.

Ultimately, the statement contends that these problems are deeply ingrained and systemic in our financial system, and that they desperately need to be resolved. The authors feel it may take significant regulatory involvement to change industrywide incentives for all involved.

The events of the past few years should have served as a wake-up call for all the players in our financial system. But at this point in the game, short-term thinking is so endemic to the investment process that it'll take far more than a strongly worded statement to change the tune of investors, fund managers, and corporate executives.

The price of folly
Buffett and Bogle are spot-on in their assessment of Wall Street's short-term blind spot. Managers are so focused on hitting near-term results and analyst estimates that they may neglect or even harm longer-term goals. Fund managers are often rewarded based on short-term results, not long-term gains.

But everyday investors are to blame as well. Investors' patience has dwindled over the years, and fewer folks are willing to hold for the long run. Instead, they prefer to trade in and out of positions, hoping to make a quick buck. This sort of near-term thinking usually costs investors more than it generates in profits.

For instance, bad timing in buying and selling mutual funds punishes investors plenty. A recent Morningstar study compared fund returns over the past five years against how investors who bought those funds actually fared with their investments. Across all fund categories, the average fund returned 1.0%, while individual investors actually lost 3.5% in those same funds!

Why the big gap? Simply put, investors lag because they are lousy market timers. Instead of buying and holding funds patiently, they make frequent short-term trades, usually at the exact wrong times. This study is just one more nail in the coffin of market timing, but in the heat of battle, it's hard for investors to ignore the herd mentality that comes with investing.

Becoming part of the solution
So how can we mere mortal investors take Buffett and Bogle's advice to heart? While it's not easy to tune out all the news and noise surrounding us, taking short-term events in stride is key to keeping the long-term picture in mind. Do yourself a favor: Stop watching the latest short-term trading advice on financial television, and don't feel the need to trade in your online brokerage account every day. You may lose a battle now and then, but you'll be more likely to win the investing war over the long run. Don't get sucked into the short-sighted investing game.

It may seem like a single investor can't do much to create change in our nation's vast financial system. However, if we want to heal our economy and make over Wall Street's excessively short-term focus, we've got to start with our own behavior. If it's good enough for Buffett and Bogle, maybe long-term-focused investing is good enough for us, too.

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Amanda Kish is the Fool’s resident fund advisor for the Rule Your Retirement newsletter. She owns none of the companies mentioned in this article. The Fool owns shares of Berkshire Hathaway, which is a Motley Fool Stock Advisor recommendation and a Motley Fool Inside Value pick. The Fool has a disclosure policy.