Why Slow Money is Better than “Fast Money”

Last night, I read a fresh take from my fellow Fool Brian Richards about the futility of short term predictions. In his article, titled “Did You See That Story About the Impending Market Crash?”, Brian listed down numerous examples of how pervasive the financial punditry scene had become in terms of forecasting the immediate future.

One of the examples given was particularly amusing. I’d let Brian take the lead now:

CNBC, April 7, 2014: “‘Scared’ Dennis Gartman: Get out of stocks

Key quote: “[Gartman] pared down his exposure to equities from an average of 100%, to close to zero.”

Issue: What is Gartman’s track record? Has he made these sorts of calls before? Why should we be scared, and why should we get out of stocks?

CNBC, April 21, 2014: “Dennis Gartman: I’m back in stocks

Key quote:

Two weeks after making a substantial call to get out of equities, Dennis Gartman now says that he’s reentered the market and has become “pleasantly long” of stocks.

On CNBC’s “Fast Money” on April 7, Gartman said that he was “scared” out of all of his positions in stocks by a market reversal the previous Friday. “I’m not sure what happened, but something happened between 11 and 11:15, that everything turned on a dime,” he said.

Issues: (Many.)

Let’s come back to me (Hui Leong) again. In essence, the “Fast Money” pundit basically sold out almost all of his share positions on 7 April 2014, only to buy it back 14 days later. As it turns out, the bold moves were based on his observation of the market over 15 whole minutes.

Let’s put this into context.

If we decided to do what the “Fast Money” pundit did and change our minds on our portfolio every 14 days, we would be selling and buying roughly 13 times each in a year. At commissions of say $30 per trade, we would be looking at $780 in trading cost per share every single year. Multiply that by the number of shares in the portfolio, and it quickly becomes an expensive indulgence. That’s a mightily-high trading cost hurdle the “Fast Money” crowd will be putting up for themselves to scale.

Thing is, that same $780, when used correctly, can generate substantial gains. For instance, over the past 14 years since the start of 2000, pan-Asian retailer Dairy Farm International Holdings Ltd (SGX: D01) has generated a total return (where gains from reinvested dividends are included) of 2,197%. A $780 investment into Dairy Farm 14 years ago would be worth more than $17,000 today if you had reinvested all its dividends along the way. That just sounds like a better deal to me.

Foolish take away

The possibility of outstanding long-term returns like what Dairy Farm has achieved might be why Foolish investors like me prefer to measure our performance over 15 years rather than 14 days or 15 minutes. Timing the market based on short-term movements may sound smart, but the odds are largely not in our favor.

Hence, our future selves may be better served by focusing on “slow money” and by investing with businesses that we can participate in for the long term.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.