Why markets are not casinos

The good things in life take time to be cultivated and enjoyed—why should investing be any different?

The accelerating pace of technological development has brought efficiency to our lives, but is increasingly eroding our capacity for patience. Subtly, but surely, technology is influencing society to demand that everything be faster. We read Twitter instead of books, we watch short TikTok clips instead of long videos and we seek to get rich fast instead of slowly. In such a world, slowing down to appreciate time can be powerful.

This is according to JC Xue, portfolio manager at Foord Singapore, who says that slowing down can be powerful. “We can appreciate time in the context of investing. Reuters reported that the average holding period for US shares hit a record low of 5.5 months in June 2020 (down from 14 months in 1999). The emergence of zero-commission trading has turned markets into casinos. The gamification of share trading platforms has incentivised more trade activity in shorter periods.”

“Shrinking holding periods means fewer investors think of stocks as owning businesses: this offers opportunities for patient investors with much longer time horizons. Lengthening time horizons from mere months to years or decades improves investment success rates. We should be willing to build wealth slowly.”

Xue says that we can also appreciate time as a dimension to evaluate businesses – fast and slow are both useful lenses to evaluate competitive advantages of companies. “Retail giant Amazon thrives on the fastest delivery times. Apparel vendor Zara keeps customers returning by responding fastest to fashion trends. However, in the luxury segment it takes decades to build brand heritage. Chanel’s 100-year-old heritage makes its allure and iconic designs built around its eponymous founder more powerful.”

“In alcohol, the best spirits and wine take years to age. You cannot accelerate time to create 20-year-old whiskey (though some have tried). In media, memory builds nostalgia, which is a function of time. Franchises like Star Wars monetise nostalgia and build nostalgia for new generations. In sports, a loyal fan base is built through years of winning trophies. You cannot recreate the fan base without the legacy of success.”

Companies thus exploit the value of time through the spectrum of very long versus very short. Products and services delivered on the extreme ends of the time spectrum therefore have advantages that are difficult to replicate.

“At Foord, we harness time by setting longer investment horizons to reap the rewards of compounding business value over decades, not months. And by building portfolios with durable businesses that understand how time can create formidable competitive advantages.”

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