Why are there so few long-term investors?

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Daendrew
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Why are there so few long-term investors?

Post by Daendrew » Wed Sep 19, 2018 10:16 am

Why are there so few long-term investors? Most funds and ETFs have such great turnover.

After Warren Buffett you would be hard pressed to think of the next big long term investor.

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nisiprius
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Re: Why are there so few long-term investors?

Post by nisiprius » Wed Sep 19, 2018 10:25 am

I don't know, but when I exchanged my holding of the Vanguard 500 Index Fund for the Vanguard Total Stock Market Index Fund, circa 2005, I created "turnover" in the 500 Index Fund without changing my opinion of myself as a long-term investor.

There have been, in the past, many such exchanges of one fund for a broadly similar fund; for example, when I rolled over my Fidelity-managed 401(k), I exchanged several actively-managed Fidelity funds for index funds.

Until I hit age 70-1/2, I probably averaged less than four transactions per year. Now that I am using the Vanguard RMD service, every month I am automatically selling RMD-sized amounts in eight funds, so I am now making ninety-six transactions per year and creating turnover in eight funds. Yet I think that I have been a long-term investor.
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willthrill81
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Re: Why are there so few long-term investors?

Post by willthrill81 » Wed Sep 19, 2018 10:30 am

Many of us are buying more at frequent intervals.

Those in the withdrawal phase are periodically selling.

This buying and selling says nothing about whether someone is a long-term investor or not.
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greg24
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Re: Why are there so few long-term investors?

Post by greg24 » Wed Sep 19, 2018 10:36 am

Animal spirits.

NoRegret
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Re: Why are there so few long-term investors?

Post by NoRegret » Wed Sep 19, 2018 12:33 pm

To be clear Warren Buffett makes frequent changes to his portfolio: https://www.gurufocus.com/StockBuy.php? ... fett&rec=2
But I agree he's a long term investor, perhaps the best of our time. Besides a singular adherence to his investing philosophy, he has also benefited from the stability and structure of Berkshire where he has been firmly in control for decades.

Buffett's chosen playing field: common stocks (yes he also invests in preferred's and convertible's), has very large capacity in all economic conditions. Howard Marks and Seth Klarman also have consistency of process but they focus more on distressed debt which is highly dependent on economic cycles.

Foundations and endowments are supposed to have permanent capital but managers have to answer to the trustees who can be fickle. Cf. the Harvard Investment Company and Larry Summers. Their chosen investment vehicle can also become crowded, e.g. private equity and timberland.

For the individual investor, objectives and risk tolerances evolve on a shorter time scale than many realize. I've written a blog post to dispel the notion of "long term" for the individual accumulator from a purely numbers perspective: http://www.50yearretirement.com/2018/08 ... e-horizon/

On the other hand, you might enjoy this Anthony Dedon interview: https://www.youtube.com/watch?v=a4_U6bS-cU4. It's long but absolutely worthwhile.

Above all, the world is constantly changing. What is your definition of "long term investing" and what are you trying to accomplish with it?

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Re: Why are there so few long-term investors?

Post by stimulacra » Wed Sep 19, 2018 12:53 pm

Probably don't just hear about them. Low turnover, low news.

alex_686
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Re: Why are there so few long-term investors?

Post by alex_686 » Wed Sep 19, 2018 12:58 pm

Daendrew wrote:
Wed Sep 19, 2018 10:16 am
Why are there so few long-term investors? Most funds and ETFs have such great turnover.
Why do you think they have great turnovers?

Most mutual funds and ETFs have constant inflows, outflows, and internal flows of cash. People deposit funds via their payroll every 2 weeks, retirees tanking funds out every month. This all creates turnover. Specifically, the reason why ETFs stay close to the NAV is because short term traders are constantly churning. ETF price higher than NAV, sell the ETF. If lower, than buy. So a very narrow sliver of shares are turnover rapidly for price discovery. However, most it stays right where it was.

Second, how much motion is there really? I just shifted a good chunk of money from a S&P fund to a Vanguard's Total Market Fund. Should I count that as turnover? Not really, economic exposure remains basically the same.

Lots of sound and furry, lots of running in place, little real action.

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Re: Why are there so few long-term investors?

Post by asset_chaos » Wed Sep 19, 2018 4:27 pm

I can google and find that somewhat less than 1% of apple shares are traded on a typical day over some recent time period. (I don't know the right search terms to use to get that number for the total market.) With a couple of hundred trading days in the year, does that 1% a day turnover mean that every apple share changes hands a couple of times a year? Or does it mean that 99% of apple shares are held for the long term, rarely traded, and that the same 1% of the shares are swapped ferverishly between traders over and over each day? I don't know. But if I had to guess, I would guess that the situation is closer to the latter than to the former.
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Re: Why are there so few long-term investors?

Post by alex_686 » Wed Sep 19, 2018 4:31 pm

asset_chaos wrote:
Wed Sep 19, 2018 4:27 pm
But if I had to guess, I would guess that the situation is closer to the latter than to the former.
It is the latter. Algorithmic trading has rapidly grown over the past 10 to 15 years. Think day-trading, but in milliseconds.

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Re: Why are there so few long-term investors?

Post by livesoft » Wed Sep 19, 2018 4:34 pm

Daendrew wrote:
Wed Sep 19, 2018 10:16 am
Why are there so few long-term investors? Most funds and ETFs have such great turnover.

After Warren Buffett you would be hard pressed to think of the next big long term investor.
If 99% of shareholders are long-term, but the other 1% trade insanely multiple times a day/week/month/year, would not the turnover be explained that way?
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Re: Why are there so few long-term investors?

Post by southpaw328 » Wed Sep 19, 2018 9:58 pm

greg24 wrote:
Wed Sep 19, 2018 10:36 am
Animal spirits.
What does this mean? I started listening to the "Animal Spirits" podcast recently, I really like it.

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JoMoney
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Re: Why are there so few long-term investors?

Post by JoMoney » Wed Sep 19, 2018 11:27 pm

southpaw328 wrote:
Wed Sep 19, 2018 9:58 pm
greg24 wrote:
Wed Sep 19, 2018 10:36 am
Animal spirits.
What does this mean? I started listening to the "Animal Spirits" podcast recently, I really like it.
It's a term used by John Maynard Keynes to characterize human behavior in the markets
https://en.wikipedia.org/wiki/Animal_spirits_(Keynes)
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Re: Why are there so few long-term investors?

Post by ReformedSpender » Thu Sep 20, 2018 7:48 am

Why? Not many want to get rich slowly

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Last edited by ReformedSpender on Thu Sep 20, 2018 8:23 am, edited 1 time in total.
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Re: Why are there so few long-term investors?

Post by AlohaJoe » Thu Sep 20, 2018 8:02 am

Daendrew wrote:
Wed Sep 19, 2018 10:16 am
Why are there so few long-term investors? Most funds and ETFs have such great turnover.

After Warren Buffett you would be hard pressed to think of the next big long term investor.
What makes you think most people aren't long term investors? From looking at the actually trading patterns of 1.2 million people:
Almost all participants (80%) initiate no trades, and an additional 10% makes only a single trade, in a two-year period
Sounds to be like they are long term investors. They trade less than Warren Buffet.

You're making the mistake of thinking that the vocal, very visible 5% is representative; they aren't.

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Re: Why are there so few long-term investors?

Post by inbox788 » Thu Sep 20, 2018 10:05 am

Daendrew wrote:
Wed Sep 19, 2018 10:16 am
Why are there so few long-term investors? Most funds and ETFs have such great turnover.

After Warren Buffett you would be hard pressed to think of the next big long term investor.
Who do you mean by "investor"? Managers or funds themselves or their customers?

https://www.investopedia.com/ask/answer ... lfunds.asp

ETFs are a relatively young construct. https://en.wikipedia.org/wiki/Exchange- ... nd#History

Indexing is also relative young and has low turnover.

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Re: Why are there so few long-term investors?

Post by Sandtrap » Thu Sep 20, 2018 10:09 am

Daendrew wrote:
Wed Sep 19, 2018 10:16 am
Why are there so few long-term investors? Most funds and ETFs have such great turnover.

After Warren Buffett you would be hard pressed to think of the next big long term investor.
The fundamental precept in "Bogleheadville" is to be a long term investor. Perhaps the "turnover" is from non-Bogleheads.

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Re: Why are there so few long-term investors?

Post by MJW » Thu Sep 20, 2018 10:44 am

Long-term is a long time.

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Re: Why are there so few long-term investors?

Post by wolf359 » Thu Sep 20, 2018 10:53 am

MJW wrote:
Thu Sep 20, 2018 10:44 am
Long-term is a long time.
Around my office, "long-term" investing means holding the asset long enough to qualify for long-term capital gains. That's 1 year. 5 years is considered a "really long time."

When I introduce the concept of a minimum holding period of 10 years or more, they think I'm crazy.

The feeling is mutual, as they tell me their plans to cash out old 401k plans to pay for kids weddings...

I'm the stodgy old man in my peer group. Even though I'm about 10 years younger than some of them.

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Re: Why are there so few long-term investors?

Post by iamlucky13 » Thu Sep 20, 2018 1:02 pm

Daendrew wrote:
Wed Sep 19, 2018 10:16 am
Why are there so few long-term investors? Most funds and ETFs have such great turnover.

After Warren Buffett you would be hard pressed to think of the next big long term investor.
Jack Bogle?

Who are the big short term investors on your mind? I guess Carl Icahn fits. I don't personally know of others off hand.

It seems to me more a matter of few people know many investor names at all. They're generally not celebrities. I could expand the list a bit by referring to people talked about here semi-frequently like Larry Swedroe or Paul Merriman, but they are not widely known.

As to funds, there's an obvious divide between index and active funds, with index fund strategies being naturally long term, and active strategies I suppose tending towards frequent trading to try to beat the passive approach. However, even within active funds, there are exceptions that have low turnover, like Primecap.

Aloha Joe already covered the fact that among the masses, the majority tend not to trade frequently. Unfortunately, I'm sure when they do make trades beyond regular contributions or withdrawals, many do so mainly at the wrong times in response to extreme market conditions.

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