Long-term thinking is not foolish at all
April 1 will be casually termed a fool's day. Each year, several pranks and jokes are made on this day. However, thinking long term is never a foolish approach.
For example, there could be valid reasons for investors to be foolish and bail out of investing. This is an unusually uncertain environment we are currently exposed to. Investors may feel that we have arrived at a place we've never been before.
At a recent leadership summit I attended, I was schooled of a VUCA moment - which refers to a scenario characterised by volatility, uncertainty, complexity and ambiguity. Readers are encouraged to adopt this VUCA concept which is likely to be around for a short to medium term, and even long term.
Readers are furthermore encouraged to adopt the long-term perspective when investing for their medium- to long-term goals. The purpose of this article is to demonstrate that taking this approach will yield more rewards.
Let me demonstrate the benefits of adopting long-term perspectives. I am proposing a 10-10-10 principle, which is a model that can be adopted for any long-term consideration.
So, how does this logic work? Take a decision in your life; any decision. Maybe it's whether to buy that celebrity gossip magazine in the checkout aisle. Maybe it's whether or not to stop and get an order of chicken nuggets or hotwings after work when you're feeling hungry on your way home. Maybe it's something else entirely.
Before you make that decision, ask yourself three questions:
- How will I feel about this 10 minutes from now?
- How will I feel about this 10 months from now?
- How will I feel about this 10 years from now?
The choice that pops out of those questions with the best overall results is the choice you should probably make.
Here's a practical example: Let's say I'm considering buying an iPad and can envision some uses for it, but it costs R9,000. How will I feel about this 10 minutes from now? I'll probably be really excited to have that fresh new iPad under my arm, taking it home to unwrap it and play with it for the first time.
How will I feel about this 10 months from now? This is the tricky part. If I honestly use it a lot, I'll probably be at least somewhat happy with it, but how truly am I likely to be using it on a daily basis? Is it something I'm going to pull out several times a day? Or even once a day? When will it replace my phone usage and my normal computer usage and my kindle usage?
How will I feel about this 10 years from now? I likely won't be using it in 10 years - in fact, it's extremely unlikely. I really doubt that I would trade my experience with that iPad for the R9,000 I paid for it at that point. So, after funnelling the decision through those questions, I'm probably not buying an iPad Pro.
What you think about any choice 10 years from now is a really, really good way to think about the long-term ramifications of a decision that you're about to make.
If you make most of your choices on instinct, they're not necessarily bad choices, but they're usually geared strongly towards the short term. It is prudent to lean towards decisions that are the best at the 10-year time horizon whenever possible.
- Sekese is a certified financial planner professional and member of the Financial Planning Institute, visit www.fpi.co.za