The Long Term Advantage

Advantage of Long Term Thinking

There’s an advantage in the business world for thinking long term. If a company only makes short term goals then it will be forced to compete with many other businesses in the same industry. It doesn’t take a lot of foresight or planning to run a company for 1 or 2 years, so that’s what a lot of other competitors will do. But if a company is willing to invest in a longer period of time, such as 5 to 10 years, then it will gain a competitive edge because there are fewer companies that set those kinds of lofty goals. 🙂

For example McDonald’s owns the real estate of its fast food restaurants. Leasing might be cheaper in the beginning, but owning property directly is more profitable in the long run.

New video games that take a long time to create, such as the Grand Theft Auto franchise or The Elder Scrolls series are typically released once every 5 years or so. Not many game studios spend 5 years developing a single product so these types of games will often have less competition in their genre, and receive more favorable critic and user reviews due to their quality than other franchises which have a much shorter development cycle, such as Call of Duty.

Netflix would have higher earnings if it focuses more on near term profit and not spend so much cash on creating new original content. But from a long term perspective its executives have decided that investing in additional content with more market penetration is better for shareholders in the long run, because there’s not a lot of other streaming services with that level of long term dedication to their brand. But Amazon.com is another company that thinks long term.

“Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. At Amazon we like things to work in 5 to 7 years. We’re willing to plant seeds, let them grow—and we’re very stubborn.” ~ Jeff Bezos, Amazon.com CEO

We can adopt a similar long term model to our own lives. In addition to setting annual financial goals, we can also plan ahead and give ourselves income and net worth targets 5 or 7 years into the future. We have to be like a hot air balloon, and rise above our current position to look from a broader perspective. ? It doesn’t mean we have to meet all our goals but it will give us a helpful direction and something to look forward to at all times. We can also align our investment philosophy to target specific stocks and funds that have longer term market strategies. For example, instead of investing in a junior mining company that has a small chance to strike gold, maybe it’s better to choose a larger, more established company with longer term sustainability in mind so we’re less likely to lose all our money in the next recession. We shouldn’t invest in the stock market unless we plan to be in it for a while anyway. 🙂

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Random Useless Fact:

Not many people will get the following riddle.