Canadian Couch Potato recently responded to a reader’s comment that her investing strategy based on purchasing exchange traded funds did not seem to be working. There are some very insightful comments from readers but what struck me was the reader was already questioning her investment strategy a mere 3 years after starting it which is way too short of a period of time to start second-guessing yourself.
The best and worst thing to happen to the investing public is the internet. It was provided us with research and information we otherwise would have great difficulty obtaining but it has given us collective ADD and a sense we should all become day-traders to be successful investors.
However, if you read a recent interview with billionaire T. Boone Pickens, his traditional investing horizon is 5 years (it is now 2 years for him because he’s 82 years old). 5 years is, arguably, even a short period of time for an investor with a 15-20 year plus investing horizon, remembering Pickens made his reputation as a corporate raider (now known as private equity post Gordon Gekko) and hedge fund manager- occupations not exactly known for patience.
If you looked at the interval of time between recessions in the U.S. since the end of WW II, the results are (in years rounded up), 3, 4, 3, 2, 9, 3, 5, 1, 8, 10, 6. In other words, even a minimum of 5 year hold period in a product or investing strategy would have outlasted or equaled 7 of 11 economic cycles of one recession to another since WWII. By jumping in and out under 5 years, an investor risks missing the run-up in a recovery or investing at the start of a down-turn.
(as a side note, note how much larger the last 3 numbers are to the first 8- the 9 year figure notwithstanding. It tends to show how historically anomalous the period of 1982-2007 was and how “normal” a recession should be in the natural economic cycle of any nation. In other words, hyperbole of a possible 2nd recession tends to ignore historical realities)
The exception, as Pickens referred to, is if you have a short investing horizon a minimal 5 year period may be too long.
The long and the short of it is that it is not so much that a strategy is misguided but a poor investor does not give any strategy or product enough time to come to fruition. It is analogous to, short of a disaster, cutting a first date short halfway through dinner and deciding he/she is not worthy of a second date. How you know with such a small sample size?
Investing horizons also becomes a great litmus test for the quality of an investment advisor. If he/she cannot stick to a prudent strategy or product they recommended to you for 5 or more years, it may show they are merely salespeople churning through your portfolio for commission.

