Catching the Rain: The Power of Long-Term Thinking

It’s a philosophy shared by some of the world’s most successful investors. Here’s why you should start thinking long-term.

The success of an investment strategy, like that of a business, is largely determined by the principles that inform it.

At Rubicoin, we begin with the principles and build outward from there. (Check out our Six Golden Rules). Today, we will look at one of our guiding principles that is shared by many of the world’s most successful people, from Warren Buffett to Jay-Z.

It’s called long-term thinking, and there are few practices that will better serve you in your investing life.

Making the leap into long-term thinking can be a genuine challenge, and it involves more than just an updated budget planner. It actually requires you to commune with your future self, to imagine the world from their perspective, to predict how they might thank you for the decisions you’re making now and will continue to make.

If you want to be a successful investor, you will need to retrain yourself to put the future first, at least in this respect.

And no, that doesn’t mean you can’t still take the Robin Williams approach and “seize the day.” It doesn’t require endless expectation and worry at the expense of present happiness. It just means that good investing requires a few presuppositions, the most central of which is this:

The future is a real place, and you will be there one day.

In order to demonstrate the power of this kind of mindset, here is a little thought-experiment.

Let’s say that, for whatever reason, you have decided that what you really want is to collect a cup full of rainwater. Maybe you have reason to believe that rainwater contains magical properties, or maybe you just prefer it to the regular stuff that comes out of the faucet.

At any rate, you want to catch some rain.

In the above scenario, you have only two resources at your disposal; the cup (which here represents your investment portfolio) and a far more temperamental, complex and mysterious entity: the weather itself (read, the market).

So you go ahead and place your cup in the garden and wait for some rain to come down. Sure, it will take some time for anything much to happen, and even when the desirably bad weather comes, its effects might at first seem negligible.

But you don’t sweat it. You let the weeks pass. For long periods, you allow yourself to forget about the cup altogether, safe in the knowledge that every time some rain comes along, that little receptacle of yours is gathering some up just for you.

There will be good days and there will be bad days. There will be days when it pours and days when it drizzles. There will be very hot days when some of the water in your cup actually evaporates, turning to steam before your very eyes. There may even be days when you feel like giving up, or bringing in your cup and taking that long-awaited sip, certain that the water-level has reached its peak.

Occasionally, if you’re very unlucky, a catastrophic wind will come along and not just destabilise the position of your cup but actually knock it over, forcing you to – as it were – start over.

But winds as strong as these are rare and – should one come along – there are ways of avoiding its worst effects. To protect yourself against such contingencies, the best strategy remains the simplest. Put out another cup. Put out five more cups, of different shapes and sizes, and in different parts of the garden, so that each one supports the other and each one contributes to a broader, smarter strategy.

By diversifying your method for catching rain, you are not only increasing your odds of success, but simultaneously reducing risk. Even if one of those cups turns out to be cracked, the stabler, more dependable cups will make up the difference.

And what to do in the meantime? You guessed it. Just wait.

Ride the waves of any impatience you may have. Slide out of the day-to-day. Start seeing the world year-to-year, even decade-to-decade. This is what almost all of history’s investing superstars, including Buffett, Peter Lynch and Carl Icahn, have trained themselves to do.

None of these guys have any special insight into the complex operations of the weather. They just choose the right cups, and put them in the right places, and know the value of patience. Learn from them.

And one day, way down the line, you will step outside to find that the sun is shining and the clouds are all gone. But that’s okay. You’ll already have all the water you could possibly need.

 

Rubicoin operates a full disclosure policy. Rubicoin staff may currently hold long positions in some of the companies mentioned in this article.