If you look at the graphs for the stock market, USoil or any currencies you will see that at the higher time frames (usually day/weeks/months/years) there are clearly defined trends. The markets will bounce up and down but the general direction will be clear.
If you look on the smaller time frames (a mistake which many new investors make) you will be hard pressed to see any clear trend because there is so much noise. A relatively small event can trigger big moves during the day and the fools rush in to buy or sell the “hot” stock or currency.
If you were looking at this from a perspective of weeks, months and years you would hardly notice the tick on the graph. This means that you insure yourself from all but the biggest single day events and you can actually use your head when investing instead of relying on luck or tips from strangers on dubious online forums. It also means you have a lot less stress as you only need to check your investments once a week instead of every few hours.
It’s probably a great idea to apply the same thinking to life in general.
The Ability To Let That Which Does Not Matter Truly Slide.
In the day-to-day happenings of your life a lot of little things happen which will have no consequence five years down the line. One could go further and say that they will have no consequence one year down the line or even next week! For instance, you might burn yourself while cooking. While this is not a pleasant experience it’s not a big deal. You probably won’t even remember it this time next year. Let’s call this type of event “daily noise”. This daily noise could include getting stuck in traffic, having an argument with a member of your family or losing your phone. The problem arises when your daily life revolves around this daily noise and you don’t get a chance to step back and look at the long term picture with an objective mindset. It means that you are not taking responsibility for the long term effects of your daily actions and you have little hope of seeing positive trends in your life and if you do it’s by chance and not by planning. Looking at life in terms of months and years is far more effective if you want to clearly see where you are heading.
I’ve briefly touched on looking at higher time frames for investments but let’s look at the other side. Image you want to purchase something but you need credit because you do not currently have the full amount to be able to purchase the product outright. You can get a store card or a credit card and purchase it. Because most people do not think in higher time frames they just see the monthly payment and think that they have a great deal! They can have that product that really want for only X pounds a month! In reality, over the course of a few years, they are paying up to 50% more than the original value of the product! Credit card companies exploit the fact that most people don’t see things that way and so they encourage everyone to pay as little as they can on a monthly basis so the interest builds up over time.
The great thing is that this works the other way too. Put money away each month or year and you earn interest on those savings. It might not seem much but with enough time and the power of compound interest (earning interest on your interest) you can get great returns. Of course, this requires long term thinking.
The same type of thinking is needed to succeed in any area of life.
- Anything you can think of.
At school or university you don’t see yourself improving after every class but each year you notice large improvement. You aren’t going to see yourself get fitter every time you go cycling or running but over the course of months it’s clearly visible. You aren’t going to take great photos the first time you pick up a camera and you are not going to play beautiful music after a couple of lessons on an instrument. The list goes on and on and on. There are no shortcuts and ignore those who tell you that they exist. These people usually want access to your wallet or worse.
I think the problem with our “modern” day thinking is that we live in a society based on instant gratification. I’ve put “modern” because I am pretty sure that a lot of people also had this time-frame misconception in the past but as I wasn’t around I can’t say. Today everything is instant. We have smartphones that keep us connected wherever we are and most thing are just a push of a button away. I, for one, am glad that many of these technological advancements exist . I certainly prefer running the tap when I am thirsty than having to walk to the local well to fill up a bucket.
The problem with all these improvements is that certain parts of life have just not caught up and probably never will. When we think of time we think of hours or weeks. Travel is now measured in hours or, at the very most, a few days. Education is measured in hours. You have 40 hour courses. For example, today’s music students hash out compositions in a few weeks and while they probably don’t expect to rival the masters they hope that their music has depth. Beethoven took over four years to get to a final draft of the 5th symphony! Another example is the Sagrada Familia in Barcelona, Spain which has been under construction since 1882 and is set to be completed in 2026. Gaudi, the architect who designed it, did so with full knowledge that he would not be around to see it at completion. Most, if not all, artistic endeavours will never catch up to the frenzied speed of modern life. So they require a different, long term approach. Most arts require years to grasp and decades to master.
It’s also far less stressful and more efficient to think in higher time frames. Imagine that you can’t go cycling for a week because there is a huge snowstorm. The short term thinker will be pissed off that he can’t cycle and will worry that he is getting unfit and he will stress out. The long term thinking will realise that the snowstorm will not last forever and in the long term, not cycling for a week is not a big deal. He or she will probably use the week to catch up on some reading or other pursuits. Taking this a step further, this way of thinking also allows you to stop stressing about all the daily noise. Stuck in traffic? Don’t worry, it won’t change your year either way. Lost your phone? You’ll get a new (and probably better) one.
Remember: Long term thinking is not an excuse for having your head in the clouds
So the point is this: Fill your day as much as possible with actions that you will look back on and be glad you did. Slow down, don’t cry over spilt milk and remember to smile.