Overnight tragedies and long-term success

Feel free to reach out to PSG Wealth Manager Dawie Klopper directly.

Do you still remember what you did when the planes crashed into the Twin Towers in New York on 11 September 2001? That shock event instantly changed the world and, suddenly, the long term was forgotten at that point.

I joined PSG 26 years ago as an investment adviser. It was a long time ago, but it feels like the other day. If someone had told me then that I would still be working at PSG 26 years later, I might not have thought it likely, but over the long term, I have been part of a success story.
What are we talking about when we talk long term? We will often say that a portion of your portfolio should be invested in shares for the long term because that is where you will get the best returns.
But things can change quickly over the short term, and then what? Something like the 9/11 attacks can happen or the Covid tragedy can strike unexpectedly, and then it feels like your long-term plan is no longer appropriate.

Does the long run change as you get older? Someone said to me the other day that if you are still working when you are 65, you are past your ‘shelf life‘. But what if, at the age of 65, Warren Buffett packed up his things and cashed in his investments and sat on the porch? Then the world would have missed out on his genius for more than two decades.
He is now 92, but 90% of his wealth was realised after his 65th birthday. At 65, his wealth reached

US$10 billion, and it now stands at more than US$110 billion.
However, does this mean that if you are investing for the long term you should draw up an investment plan and then virtually forget about it?

No, because even if you have committed to sticking to your long-term investment strategy, you still need to review your investments and make adjustments from time to time. Nassim Nicolas Taleb does say that if you make too many changes to your portfolio it will appear as if you did not draw up your initial investment plan with the necessary care and responsibility. But then he also says if you never change anything, you might be seen as intellectually dishonest.

Morgan Housel says that long-term thinking as a concept is easier to believe in than to apply. Most people know this is the right strategy in investing, careers, relationships – anything that needs compound growth. But saying “I’m in it for the long haul” is a bit like standing at the foot of Mount Everest, pointing to the top and saying, “this is where I’m going.” Well, it is a fantastic challenge but now comes the test: you must start climbing and you have to stick with it. Your oxygen will run out, you will get very tired and want to give up. You are not going to complete this challenge in a straight line.
The question is: How will you react to a sharp market drop of 30% or more? It is something like a mini avalanche on Everest. People are very worried in these types of negative circumstances and will tell me if things continue like this, their investments will be worth nothing in a few months.

The way you discount these short-term shocks within your long-term strategy is to plan primarily for an adaptable outcome, also regarding the end of your plan. No one can say exactly how the long term will play out. However, if you regularly review your investment plan, even if you do not make any changes, you will not have negative surprises at the end of your own long-term plan.
My friend Dr Lourens Bosman always says that you overestimate what you will accomplish in two years, but underestimate what you can accomplish in 10 years. This also applies to your investments.