When I worked at Goldman Sachs my mentors would always tell me to "be long-term greedy.” I didn’t fully appreciate it at the time but it makes perfect sense to me now, especially when it comes to investing. Here are 3 reasons to be long-term greedy:
1: If you think long-term, then you can think like the founder does.
My favorite investments are the ones run by founders that don’t care about quarterly earnings. Rather, they think about long-term strategies only (especially after the IPO). This is why I love Google and Amazon as both companies don’t really care about short-term guidance metrics for investors. I love this quote from Amazon's incredible CEO, Jeff Bezos: "If we have a good quarter it's because of work we did 3, 4 or 5 years ago. It's not because we did a good job this quarter." When you invest in a company, you are investing in the management team. Hence, we must think like the founder does before considering investing. In the technology sector, if all of the founders have left the firm, then the company is not a worthwhile investment in my humble opinion.
2: If you think long-term, then you can ignore irrational market volatility which purges ‘tourist investors’; this creates buying opportunities so that you are not fooled by randomness.
Warren Buffet is the best long-term investor in the history of the stock market. My favorite quote of his is “the New York Stock Exchange is the only store in the world where consumers sell stuff when it goes on sale.” Brilliant! Mister Buffett also said “be greedy when others are fearful and fearful when others are greedy.” This is a euphemism for being a contrarian; don't buy stocks everyone else buys as there will be fewer incremental buyers. Being a long-term investor lets you focus on the company's destination and not on the path.
3: If you think long-term, then your outlook on the company’s prospects will not be the same as consensus.
Before I do due diligence on any company as a potential investment candidate, I ask myself one very basic question: “In 5 years will this company be more relevant or less relevant than it is today?” Sounds pretty simple! It should be because the best investors see the forest from the trees and understand that investment trends last much longer than we think. I always ask myself this basic 5 year question before I do any due diligence on companies.
Nobody is better at being a wise long-term investor than Warren Buffett. I remember when I was an MBA student at Columbia University in 1999 and Warren Buffett was teaching one of our classes on value investing. One of my classmates pitched a technology stock to him. He very politely interrupted 30 seconds after my classmate pitched the stock and said “Son thank you very much for the idea but I don’t have enough visibility where this company is going to be product cycle wise in 3, 5, 10 or 20 years.” He was right as 6 months later the technology company my classmate was pitching went belly up; there is a reason Warren Buffett is called the Sage of Omaha.
Mister Buffett ended his presentation to us with this prophetic investing quote: “The longer the view, the wiser the intention”.