““A man grossly overestimates what he can achieve in a year and vastly underestimate what he can achieve in a decade.”
Introduction
Let us do an exercise, think of what you have achieved in the last year.
And then, think of what you have achieved in the last 5 years or 10 years. Though you might not have been very happy with your achievement for the last one year, the five-year exercise would have surprised you positively. You are at a different level in your career, your financial position would be better, you know yourself better. Sure, things could have been better but if you pay attention there would be a lot to be grateful for. We do not pay attention to the long term as it seems to have happened so slowly. Long Term Thinking can be an asset.
We overestimate what we can do in a year. This is how most new year resolutions never materialize. We take on too much, get bogged down, get upset, and quit. However, we definitely underestimate what we can do in long term- say 3 years, 5 years, 10 years. Long Term Thinking can provide the direction.
ILLUSTRATION
For example:
If your goal is to add 10 kg muscle:
You can plan for adding 10 kg muscle in one year. This is a tall ask. Many will try, track their progress, get disappointed, and ultimately give up. 9999 out of 10000 will not achieve this goal (10 kg muscle in one year is almost impossible). The one who does would be genetically gifted. We are talking of Arnold type gifted. We would be planning for failure.
However, if you extend the timeline to 5 years then you just add two kg of muscle every year for five years, you would end up with 10 kg of pure muscle which is 25 lbs of muscle.
Not only that, because you keep gaining muscle, your metabolism will improve, burning more calories even in a restive state. Chances are you will gain 10 kg faster than 5 years. We do not plan for five years though. We want that beach body in one year. It does not happen.
Planning or stretching that goal for the long term helps you attain the goal eventually and also does not tax your current life too much. It helps us achieve our goal.
An overnight success, rarely ever happens overnight. Ask a sportsperson, who becomes a craze by 18- 20 years and chances are he has done nothing but play throughout his life.
ANALYSIS
There are multiple things to ponder over here:
- Take compounding into the equation. Most people do not. We say that we understand compounding but by itself, it is a very counter-intuitive (Read here).
- We do not plan for longer horizons. We think we do but most do not.
- We do not stay committed or consistent enough in our efforts
Modern society is structured in such a way that the gains have become back-ended rather than upfront (Read Here and Here). Getting an education is perhaps one of the better examples of it. People would go to school, then intermediate, and then off to college to get an education. This entire process can take 20 years of life and then the gains start to come in terms of job, networks you created, maybe even a stint in entrepreneurship. This though has been normalized in life. Nobody expects you to look for a job when you are fifteen. Pursuing a career or an education is an example of long term thinking.
We have to start applying a similar sort of mindset, though we may not have the luxury of time like a teenager but we have to apply the concept. You want to do something worthwhile, barring some exceptions, you would have to take a long term view to get the benefit.
LEARNINGS
This applies especially in the case of personal finance and investing.
- Things do not happen overnight. It takes time for your savings to accumulate, develop a portfolio, understand your thought process, goal planning, asset allocation, etc
- Even if you do the right things, true growth happens due to compounding (Read here) unless you get really lucky. Compounding is a law of nature. You cannot force compounding.
- Avoid the zeroes. It will not matter how good you are, or how big your portfolio is. It can go poof in an instant if multiplied by zero. Running after hare-brained schemes, guaranteed schemes from dubious players, F&O, leveraging can effectively wipe you out.
And if you stretch your goals out, it also makes sense to play the long term game with the right sort of people. You want to partner up with someone who has the same vision and goal in life as you do. Integrity cannot be compromised. Someone who you can bank on to have your back. it will not help if you keep looking over your shoulder entire life.
This is post no 21
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Great Absolutely value add article…
This will definitely leave a question to the investors who speaks about long term and keep monitoring on short run. I hope, such investors start changing their investments behavior and style after reading this.