Tuesday, October 23, 2007

Investing for the Long Run

I still think that investing in stocks for the long run is the way to go. On the whole, it’s a far better strategy than short-term trading. Why not own a bunch of index funds that are diversified? You can get this stuff cheap. They’re liquid, tradable, and relatively inexpensive.

Take a look at this great chart going back to 1980.

Look at the unbelievable performance over the last quarter century. In fact, had you bought the Dow just after Black October of 1987, you’d be up around 680 percent today.

My friend Ben Stein has been hammering this home recently. He wrote a great piece in The New York Times two Sundays ago about this very point. Ben is dead right. (Incidentally, Ben will be sharing his unique perspective with us on Kudlow & Company Friday night.)

Last night I asked Jeremy Siegel, Wharton Finance professor and author of “Stocks for the Long Run,” the following question: Who does better, long-term investors or traders? That’s really the key question. Siegel said it’s a no-brainer—definitely long term investors. He conceded that there’s a very tiny few who can buck the trend and succeed in the short term game. But on the whole, it’s no contest, you want to be a long-term investor.

I posed the same question to Trend Macro CIO Don Luskin. Here’s what he had to say: “There’s no question about it. The great myth of trading is that it’s the very, very few survivors in the trading game who show their face to the public, who come on CNBC. What you don’t see…are [the] 10,000 who are driving cabs and flipping burgers somewhere.”

It's quite simple actually. If you want to fatten your wallet, and if you want to sleep better at night, then you need to own a piece of the American rock. Own it for the long run. Our dynamic system of free market capitalism works. It’s still the safest, surest, most profitable investment strategy out there.