Why Time Horizon Works - Morgan Housel

I admire Morgan for presenting varying view on the world and on things that we take for granted . So it is tough to write a critic on his writings. I hope my attempt appeals to readers ..

Read the original article here .. https://www.collaborativefund.com/blog/why-time-horizon-works


"Time Horizon work" thesis builds on Ben Graham often abused quote - "In the short run the market is a voting machine but in the long run it’s a weighing machine "

Why this quote is abused -

What is voting deciding - Whether you are going to be weigh more or less  ten year down the line

What is weighing machine deciding : What is your current weight . It cannot tell you what your weight is going to be ten years down the line ..  But weighing machine plays an important role by giving you base data and history to decide your voting.

So is Market a voting machine or a weighing machine @ any point of time ?? ..


Morgan has points  Market is driven by two key things

1) Earning

2) Changes in how much people are ready to pay for earning

Is it so .. or is Market is driven by

1) Future Earning

2) Ability of predict future earning


Lets assume Morgan is right then we have another assumption that

Earning is more predictable and compounds over period of time and hence is more important on how much people are ready to pay for earning ..

Earning is more predictable and compounds even for index thesis on population growth and productivity growth which is like actually function of voting machine

In 2000s no one in world could have imagined GE which such history of great consistent earning would not grow its earning power in next 10 years ..

In 1980s no one could have predicted Japan industries would lose their earning power over next few decades

In 1900 no one would have predicted US companies earning growth would be better than European companies who enjoyed better access to global markets and commodities

Things change  - earning changes dramatically the compounding can be +ve or -ve only time will tell

How does time horizon works is relevant in market ..