Investing is a Marathon, Not the 100m Dash
Investing is a marathon, that’s the reality as much as many don’t want it to be.
Recent market dynamics may have told you otherwise but in the end, a reality check, in the form of a correction often comes for those who try to cut corners and get there faster.
It’s easy to see why chasing short term returns is enticing. After all, if you’re saving $6,000 per year at a 10% return, it’ll take you 30 years to get to $1M the old fashioned way, investing consistently in index funds. It’ll be even longer if those long-term returns are lower. That’s a long time if you hate your job, or have other dreams and want to do something else.
And if you’re on Twitter or Reddit or YouTube, you’re often inundated with examples of people who made their way there that much faster. Ignore the fact that a lot of those people are trying to sell you some service, access to something, or making a bunch of money via ads or whatever. Also ignore the fact that on Reddit most of those people are actually losing money.
Then the are long-term investors who don’t really make a lot of noise. That’s because long-term investing is boring. You buy, you hold, that’s it. In the short-term there might be spikes and falls but in the long-term, the general trend is up. You wait and you eventually get your money. The problem is that it takes a while. That’s not exciting and it’s not for everyone.
It’s a marathon; a long, sometimes tiring run but one that is almost a guarantee if you can wait it out. That’s the beauty of investing. If you’re patient enough, you’re almost always a winner and even the market average return beats the majority in the long run as odd as that sounds.
But some aren’t patient. You’ll see someone who bought some options before earnings and hit it big or they bought a cryptocurrency at the right time and they’re multimillionaires. Why can’t that be you? After all, you’ve read some books, maybe you have a degree in finance or you’ve been trading stocks somewhat successfully on a small scale for a long time. Perhaps it’s time to hit it big baby.
You look in the mirror and say, “I don’t want to wait 30 years,” that’s a long time. You do some research, you throw your money into one strategy or another and maybe you’re lucky, maybe things go up for a bit as they have in recent years. Maybe there’s a dip and it doesn’t last long then recovers which gives you more confidence in your strategy.
It’s quite easy when you haven’t seen a long extended draw-down as it’s been a decade since that occurred.
You make some small profits and grow that portfolio at a faster clip than the index for a few months, even a year or more. Now you’re ready to hit the big winner.
There’s always a bubble forming somewhere. You see one, see another, see some more and you jump head first into it because you’re chasing those returns. You don’t want it to take thirty years because marathons are boring. They take forever and training for one sucks. You’d rather watch the 100m dash because it takes 10 seconds and you can run it yourself even if you’re in bad shape. You’ve seen it done before.
That’s the danger of a market like we’ve had the past few years, everything seems easy and it can be in the short-run, sometimes you get lucky. The problem is that it’s not across a longer period of time.
You look at your $6,000 and you want that to be $1M and you don’t want it to take 30 years.
Growth stocks are your ticket. They’ve been all the talk online. You look at some charts and you can see that they’ve been going up since 2020 and everyone on Twitter is posting their big paper gains and you don’t want to be left behind. You look at the S&P 500 and sure it’s gone up but it’s peanuts compare to something like this. What a chart!
Someone out there tells you that there’s a line of support, the trendline is positive, resistance has been met and the 50 day MA is showing good things.
YOU ARE IN.
After all, it was $400 at the start of the pandemic then soared to $1400 then dipped to a $1000, then back to $1500 and now it’s dipping to $1200 again.
The cycle must repeat right so you buy in. Forget those S&P 500 suckers, they’re gonna miss out on this sure thing.
And bam, you’re right again.
What a freaking genius you are. It’s up to $1600. You look at your paper profits and you see yourself crossing that finish line sooner than those slow suckers running the long roads away from the cheering crowds in the stadium.
You may not be breaking the 100m dash world record but you’re still getting there much faster than a marathon runner. You can basically smell the riches. The might as well call you Smaug cause you got so much gold.
Maybe you sell and put it into another stock or maybe you get a bit greedy this time. You don’t sell because this a great company, maybe even a long term hold, everyone says so. It’s sure to keep going up.
What’s that, a war? No big deal. The pandemic is over and even that couldn’t stop this rolling train and things are great. The stock falls a bit back to where you bought it initially so you buy some more. After all, it was a great deal when you bought it so why not get some more now that you got paid again.
Inflation, who cares. Rates are rising? Sounds kind of bad but I don’t know.
The stock keeps falling. You panic and buy some more. The finish line seems further and further away.
You look at the S&P 500 and it’s down a bit too but just like your stock ran faster on the way up, it seems to be falling faster on the way down. The track seems to be a bit bumpy all of a sudden.
And you got into the race somewhat late. Maybe if you got in early it would have been OK but now you’re down quite a bit and don’t want to admit defeat.
Oh crap, it’s another 10% drop and another and suddenly you’re down 60%. The chart looks ugly.
This thing is lower than it was when the run started, back to pre pandemic prices and much lower than your various purchases. Maybe you even bought on the way down expecting that bounce that hasn’t come yet.
Maybe it will eventually, who knows with individual stocks, sometimes they just never recover to all-time highs.
The business still looks good but maybe 40x sales was a bit too much and you now you start thinking that even at 10x sales today, it still looks somewhat expensive.
What were you thinking? Maybe you got caught up in the momentum and forgot about valuations. It happens to the best of us.
Your ankle starts to hurt and you can’t seem to cross the finish line. It looks so far away, you look and there’s maybe one or two guys out of the hundreds that started that have made it. Good for them, what a skilled or lucky few.
But it’s not you, that sucks, and somehow you’ve run backwards along with a ton of other injured runners who are getting carted away by medics back beyond the starting point and getting dropped off at the medical tent. And boom you’ve shattered your ankle while you ran that exciting 60 meters and you’re in there too.
You watch sadly as the TV shows the marathon runners still trudging along. There’s tickers on the bottom that show stocks falling across the board including index funds but those marathon runners don’t seem too worried.
It’ll take them a while but they’ll eventually finish. There might be some stumbles along the way.
After all, even those long-term investors have seen their portfolios drops as much as 50% before but they know that history is on their side and they’ve always recovered and kept on trudging along.
Maybe that 30 year run won’t be without some injures and it will still require perseverance but unlike your 100m dash, the majority, if not all will eventually finish. It might take them a long time but they’ll hit those goals unlike a lot of short term investors who spend all this time running but almost always trail the marathon runners.
Some lose it all too chasing those big bets and never recover.
You look up at the ceiling and think about what just happened. What was the point of all that, all that stress, for a portion of the results?
“Maybe it’s time to join the Marathon again.”
Hopefully this time you stick with it but then again, maybe there’ll be another boom in a few years and you might not want to miss that. You’ll think that maybe this time you’ll be a bit more careful and now you know what to avoid. You won’t make those same mistakes again.
Maybe you’re right but maybe you’re not.
You imagine yourself a few years later and a lot of those same people are halfway done with their marathon. The stock market is booming again after a few tough years. Your old stock is still 70% off your purchase price and the S&P 500 is back to all-time highs. Now, growth is booming again and you see a new shiny stock.
Forget those clowns you think as you line up at the starting line of the 100m dash again and hope your knee doesn’t explode this time.
Or maybe not, maybe you just ignore it this time and keep trudging along in your index fund. Who knows.
The problem with searching for those sizable short-term returns, with running that 100m dash and trying to get rich quick is that you have to be right so often. You have to pick the right times to enter and exit over and over and over.
All it takes is one mistake, one trade that stays too long and all the out-performance can be erased. It’s why it’s so hard and why so few actually do it in reality.
Some do get lucky and have one great massive trade but that’s a tiny percentage of all traders. The majority do all that work and end up trailing the index and despite wanting to run a 100m dash, they end up running a marathon anyway and it takes them longer too. The risk/reward just doesn’t seem worth it.
Even professionals rarely do it in the long run, most can’t beat a simple S&P 500 index. It’s a tough game out there and being right so often just isn’t feasible.
On the other hand, long term investors, those marathon runners, just have to be right once, with the assumption that stock prices many years from now will be higher than they are today. You keep an emergency fund and just buy regularly, no matter the price and eventually you’ll be all right. History has proven that out.
What kind of investor are you?
Wow, brilliantly written article, the best I have read in a while just as the S&P dropped 3.63% today. I was thinking the same in terms of long term investing versus short term gains. DCAing myself into adding more when I can is the best foot forward instead of trying to time the market.