Monday, November 22, 2010

Economics @ Home © Volume 2 Issue 24

Be Long Term Greedy

Many value investors or people who are interested in value investing would have heard of this term many times. What does it mean? In simple terms, it would mean to focus on getting what you want in the long term. To address this issue, there are two questions that you should be asking.

Why should we be greedy? Is greed good? Morally speaking, and conventionally speaking, it is difficult to view greed as a good thing. How can greed be a good thing? To know that, we must first understand what greed is. It is simply always wanting more than what we have. To never be content. More is simply better. Well, it is indeed greatly unfortunate that human nature drives us to want what we can't have. For those who are able to practice self-restraint, then the act speaks for itself. Self-restraint, which is to deny oneself of one's true nature.

That settled, it is safe to generalize that most of us are greedy. We have a tendency to always want more than what we can chew. Now, there is no way of twisting this to make it sound like a good thing. However, the discussion today is not just about being greedy, but about being long term greedy.

This brings us to the second question. What does the phrase long term add to the issue? For those of you well-read economists, you might quote the great Keynes, who said "In the long run, we are all dead". However, my boss would be very quick to add, "We would rather be dead in the long run, than dead in the short run". Now, back to the question, what does long term greedy really mean?

The quick definition was given to you at the start of this issue. It simply means to focus on obtaining what you want in the long term. Well, the point I am trying to bring up is that, since we are going to be greedy any way, it is better to be greedy in the long term than be greedy in the short term. But why is this better?

As we have all experienced, in our daily lives, new events, new inventions, new fashion and what not keeps cropping up and we always want the next newest thing. Seeing the new arrivals, we tend to set a goal towards obtaining those new goodies and soon before we are able to achieve our goals, new and better goodies are going to pop right out and now, you will have to change your goal to achieve that instead.

If you were to set a long term goal, something which is to be achieved in 20-30 years time, and work towards that, you will be less likely to be distracted from the short-run fluctuations. Set the goal way high up, be very greedy about it. Work towards the long-term goal. That way, we always have our eye on the ball. We would not be distracted by the short run hiccups on and off the road.

As always, these kind of things are easier said than done. It is very difficult to work on, and you will only truly realize the benefits once you have tried it. That is why it is so difficult to grasp the concept. But listen to those who have succeeded. Read about the success stories of those who chose to delay their gratification. Make the short term sacrifices. Focus on your long term wants. It is OK to be greedy. But be long term greedy. Achieving long-term goals is not a sprint event. It is a marathon.

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