Investing forces, you to think long-term. And various studies have shown that deferred gratification does better in the long run. This will be due to the opportunity to reap rewards multiple times over. And not just a few times over, but exponentially more times. Imagine being able to take one lavish big European backpack trip in your early 20s as a gap year, or someone who gets to work right away, and is able to take these long trips many times over every few years when older. Or better yet, someone who works hard early on, retires early, and is able to not work at all, and take vacations whenever they want, without needing to beg an employer to take a few weeks off and then some unpaid time off. An interesting experiment was done by psychologists of young children over a long period of time. They offered the children one cookie right here and now, or if they waited 20–30 minutes, they could get two cookies. From tracking children into the longer run, based on the psychologist’s subjective view of the quality of life, the ones who waited for deferred greater gratification ended up outperforming. Of course, with life, many things happen and results are not so easily predictable, with many uncontrolled variables that throw the best plans right out the window. But living life in hedonism, sacrificing the future or not having a plan for the future does not work either. Particularly when other people are involved and you are benefiting yourself at the expense of others whom you have a responsibility for.

Angel investing in startups may be the best store of value; even amongst different investment options. This being due to the expectation of needing to be super long-term, perhaps 10–15 years until a liquidity event occurs. Not being able to easily sell before that time seems like a curse, but is actually a blessing in disguise. That long holding period of inactivity allows all potential gains to be fully realized. Contrast this to the increasing gambling mindset of the younger generation, due to erosion of wage increases, meagre pensions, expensive housing prices, etc. This has led to the subconscious sin of greed leading to a short-term mindset, with more frequent buying and selling in the stock market. The holding time for stocks has decreased significantly. In the 1950s, the average holding time for a stock was 8 years time. Now, excluding the top 5% longest term holders, in the 2020s that number has dropped to a mere 3 months. One might try and provide the counter argument that new generations with technology are more savvy investors and are making more profitable decisions. This goes against the data. Active investors make 2.2% annually, while the index returns 8%. Not to mention all the time and energy spent towards constantly trading, trading fees, capital gains taxes, and particularly in countries where short-term capital gains taxes is higher than long term capital gains taxes. Now investors, if you can call it investing, are making a buy or sell decision in the span of a new quarterly earnings report. Wow. This seeming blessing of instant liquidity whenever you want is actually a curse in disguise.

And isn’t passively holding with a set it and forget it attitude easier? You do a little research upfront, mostly based on intangibles on startups, since there aren’t much numbers to work with. Then you put in an amount of money that you can afford. Then you do absolutely nothing and move on with your life, since the startup has no stock price. And maybe once in a while you hear news about a new raise round at a higher valuation and potentially put more money in. As Warren Buffett would say, our favorite holding period is forever. Having that traditional mindset that is lost now in modern fast paced impatient society is counterintuitively the way to go. There’s an old story about the young man who had some savings and invested it for the long-run. But, due to lessons not yet learned, he was impatient and wanted to sell. However he got into some legal troubles from his youthful exuberance, and actually ended up going to prison. With all his money invested, he did not have any money to get a lawyer and subsequently served the maximum amount of time for his actions. After getting out of jail, he found out he became rich from his investments being harvested over time. His at first tiny investment, thanks to compound interest and necessary time, had grown like a small seed into a large blossoming tree.

Disclaimer

This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.