Long Term Perspective in a Short Term Focus World

The challenge in today’s market is a matter of perspective. For many it can be hard to ignore the constant clutter and loud volume of media analysts pitching today’s hottest stock. It seems like every economic data point is over-analyzed, over-interpreted, and over-emphasized.

Then there are the privileged few; the “clairvoyant” investors who must know something the rest of us don’t. But are they really using a crystal ball or are they just sticking to their plan? I think their secret is a long-term perspective.

I’ve been reading the book Abundance by Peter Diamandis and Steve Kotler which gave me some interesting perspective on trends and the future. Think about this: by 2020 nearly 3 billion people will be added to the Internet’s community. That’s 3 billion new opportunities for discussion, ideas, wisdom, creativity, insights and experience. The upside is immeasurable – never before in history has the global marketplace touched so many consumers and provided access to so many producers. This long-term perspective is important because it reframes how we look at certain economic signs.

Consider these examples:

The U.S. economy – overall continues to be sluggish in the first quarter of 2012 and will likely continue to appear that way for the next couple quarters. This is due in part to a focus on a few short-term economic statistics like retail sales. Overall retail sales were down 3/10^th of a percent in last week of March*, which is pretty anemic. Extrapolated (which will invariably happen), the figures come out to a dismal number for the year. But in all likelihood the real numbers will be closer to the year-over-year number of +4.5 percent*. The net effect of this short-term focus is nervous economic data  that only confuses and frustrates investors focused solely on the now.

Corporate earnings – are surprisingly resilient despite the sluggish economy. I believe the real indicator of prosperity are corporate dividends, the payments a company makes to its investors. Too often investors focus on corporate earnings (or how much money companies made), which can be easily manipulated from quarter-to-quarter in an effort to beat analyst expectations. Focusing on the long-term dividend growth reveals companies are actually doing well.* This could be due in part to new efficiencies in their key resources of people, products and time/energy. Couple that with new technology in all facets of business from manufacturing and design to delivery and sales, and we see the benefits of looking at these companies in the long-term.

Fiscal leadership – is struggling with a familiar debate: stimulated spending to spur economic growth, or austerity (spending less). But the U.S. is not alone. Over in Europe France is grappling with similar struggles amid an election (with a vote on Sunday). And in the European Union we’ve seen changes in leadership in 11 of the 17 countries recently. I think a short-term focus can have a polarizing effect, akin to the one woven into this argument. This dispute isn’t new or unique but action and agreement continues to be elusive despite a long-term desire for something to be done.

When we focus on the short-term, the here and now, we tend to lose sight of our end goals. Sometimes taking a step back is all that’s needed to see the growth and potential of the next few years. Abundance was a nice reminder that we’re at the cornerstone of potential economic growth, all we need to do is look past the trees to see the forest.