Our advantage, if I were to sum it up pithily, would be that we are slower than our competitors. Wait, do we really want to be slower? Yes, actually, we do. With fundamental, First Principle-oriented investing, there is zero advantage and quite a host of disadvantages by being “fast” (taxes, commissions, inability to focus, et. al.). We are slow not in the sense of diligence, but in the sense of patience. We are deliberate. We do not hurry. We will be quick if an opportunity presents itself, but we will not hurry.
Being slower is sometimes marketed in the hedge fund world as “time arbitrage” (a bit too highfalutin by half, if you ask me). It is an edge that is structural and sustainable. The stock market has and will almost certainly always cater towards the gun-slinging trader types. Technology only exacerbate such behaviors. See below for a chart on the average holding period of stocks by decade. In the ‘40s through ‘70s, it ranged between 4 to 8 years. But since the dawn of the computer era and especially the internet era, it has collapsed to under 1 year:
And recall the astonishing stat mentioned earlier: the average holding period for the ETF representing the S&P 500, SPY, is a mere six days. That, for shock contrast, is a -99.5% decline from the ‘70s. Investor attention spans have vanished. It’s not that they work less hard, it’s just that their efforts at security analysis have shifted from the fundamental to the technical. Instead of attempting to profit from economic success, it’s become an attempt to profit from their fellow investors’ folly. From a game of value creation to a game of zero sum.
What this means for us is that we will sometimes look bad, possibly for an extended period of time, especially when the general market marches up relentlessly as it has over the past two years. And then there will be moments of opportunities when the market panics a bit, like in 2011 and like in the most recent quarter. We might look even worse then, because we will be at the turret with our cash pile, deploying it towards great assets at great prices – prices that may not be done going down.
But after that, we should start to look much better. It’s hard to say when that will be, but if I have been careful and have avoided big mistakes, we will be duly rewarded within a reasonable period of time.
“And the first one now,
Will later be last,
For the times they are a-changin’.”
—Bob Dylan
