With this new blog posts series, I want to share with you thoughts and experiences I had in the last years that are not related to travel or photography but that could actually be interesting for you.
The short summary of this article: Long-term thinking – Why it was and is so important for my life! When you think long-term and act accordingly, a fulfilling life is rather easy to achieve.
Over time, I have collected a lot of advice, much of which I use for myself on a daily basis and has served me well.
Many of these tips, wisdoms, basic rules, etc. sound quite simple at first glance and you may even already know them. However, in the past I was used to ignore them after having picked them up somewhere. This was especially true when I didn’t have a personal connection and haven’t seen the results with my own eyes.
For this reason, in this article series I not only want to document the tips and advice for myself, but also pass them on to you.
The pieces of advice I will tell you about have often come from successful people I have had the privilege to meet – a few times – or I have read about. Most of these people were not only successful businessmen or businesswomen, but also mentors, people who built their own businesses after being employed for their entire life, real estate investors, supervisors and colleagues with decades of professional and life experience.
Nowadays I take advice very seriously, even if it doesn’t come from direct acquaintances, because I now know how much knowledge from personalities like Warren Buffett, Gary Vaynerchuk, Tim Ferriss, Mark Cuban and many more is available to you for free and how much this knowledge could change your life and mine.
And when I write “could,” it is on purpose, because one of the biggest keys to success doesn’t lie in theory but in action and implementation.
But first things first, let’s get to my first best advice.
I would like to start with a piece of advice from someone I unfortunately do not know personally (yet), Gary Vaynerchuk.
Some biographic information about him: He is an active entrepreneur from the US America who has increased his family’s wine business annual sales from $3 million to $60 million in just a few years and has become well-known through his digital media company and his shows on social media. His YouTube videos are absolutely recommended.
“Unless you’re gonna die, you should always play long-term!”Gary Vaynerchuk
In other words, unless you’re going to die soon – which you hopefully won’t! -, you should always think long-term and act accordingly.
According to Gary, 99% of people want to see short-term results. Success must come to them as quickly as possible, everything else is a waste of time. The main reason for this behavior is that we humans are wired to think that consumption today is better than consumption tomorrow. This phenomenon is know as temporal discounting and its proliferation took place with the beginning of the industrial age.(Galor & Özak, 2016)
In the course of his career, however, Gary has repeatedly observed that the 1% who think long-term and have the necessary patience and discipline are more successful than the remaining 99%.
We [Bezos and Amazon shareholders] can’t realize our potential as people or as companies unless we plan for the long term.Jeff Bezos
This is what he wrote in a letter to Amazon shareholders in 1997. Every subsequent year, Bezos has ended shareholder letters by attaching the original 1997 essay with a reminder of the importance of thinking long term. And every year, he is proven right.
The following examples show that Gary and Jeff are not only right, but that this advice can be applied to pretty much all situations in life.
The “yield triangle” of the German Stock Institute is the best example of how it pays off in the stock market to think long-term. (Being in Germany and studying the German market, I will mostly propose you examples with reference to Germany or Europe, but the concept applies worldwide.)
Over a period of 50 years, the institute calculated what the respective annual return would have been if one had invested in the German DAX index, consisting of the 30 largest German companies, at a predetermined time and held the portfolio for at least 1 year to a maximum of 50 years.
While with an investment horizon of 15 years the worst return would still be +2.3% p.a. – covering at least the annual inflation, and the best +15.4% p.a. – so one has made money despite several major crises – with an investment horizon of only 5 years the worst result is -9.4% p.a. and the best +29.8% p.a.
You can find the graphic here.
Of course, a higher return is often achievable in the short term. However, the underlying risk cannot be controlled, so the probability of losing money is higher then when investing long-term.
With a long-term investment horizon, short-term fluctuations are not relevant as long as the portfolio is well diversified. So if you had invested in the DAX in 1993, for example, and survived the dotcom bubble and sold in 2008 shortly after the financial crisis, you would still have been rewarded with an annual return of +5.1%. Not bad!
In addition, a long-term investor is not forced to sell. If the same investor who had invested in 1993 had held his portfolio for up to 8 more years till 2016, even +7.5% p.a. would have been possible.
In figures: With an investment of €10,000 in 1993, after 15 years and after the financial crisis the total value in 2008 would be about €21,000. In 2013, after 20 years and an average return of 7.5% p.a., the total would have been as much as €42,480 – and this despite several market crises.
The situation of real estate as a capital investment is similar to the precedent example, whereby additional criteria are added here.
Real revenue drivers such as rising rents or the increasing value of the property itself can usually only be realized in the long term. In addition, keep in mind that 10% or more of the purchase price is due in incidental costs. This means that the property must first increase its value by 10% or generate corresponding income before you get into the black.
However, if you invest for the long term and hold the property for at least 10 years, you will not only be rewarded for your patience every month, but will also be exempt from capital gains tax when you sell it – assumed it is privately owned by you).
I don’t have to tell you that long-term thinking pays off not only in investments. (But I still do, I know…)
When it comes to getting better at soccer, building muscle mass or losing weight, it’s not enough to play with a ball for a single day, to spend one day in the gym or to eat vegetables for one meal. Success lies in continuously pursuing your goal and not succumbing to a torn muscle on the first day. Even if the short-term effect will not always be visible, the result will be and it will last for long. The same principle applies for blogging, but also in my professional life.
Contacts in one’s own network or even relationships are no different. If you want to get the best for yourself in the short term, you may be able to take advantage of other persons in the first round, but in the long term you will destroy valuable relationships. Also in this case it is extremely important to build long-term and healthy partnerships, because the closer these persons are to you, it is either a win-win or a lose-lose situation. We all are in the same boat.
So, really take this advice to heart. It’s one of the basic attitudes I get up every day with and that will make my life easier in the long run.
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