Quiet quitting is the latest trend to take the workforce by storm and involves doing the bare minimum at your job, such as logging off at 5 PM and only completing assigned tasks. Zaid Khan, an engineer, kickstarted the trend after posting a clip to TikTok, explaining:
You’re still performing your duties, but you’re no longer subscribing to the hustle culture mentality that work has to be your life. The reality is it’s not — and your worth as a person is not defined by your labor.
The thesis behind the phenomenon is that work should not take over your life. Employees must be offered the chance to spend ample time with their family and friends. On the other hand, investors can apply this “quiet quitting” concept to their investing strategy. In this instance, it doesn’t mean that investors should put the bare minimum towards investing. Rather, it means that investors should invest for the long term and not worry about short-term noise, or distractions.
Moreover, an investor could simply invest in the S&P 500 and let the index do the hard work. Over a 20-year period between 1994 and 2013, the average retail investor returned 2.5% annually. Meanwhile, the S&P 500 returned 9.2%, resulting in an outperformance of nearly 3x.
Quiet Quitting the Stock Market
The first benefit to long-term investing is that taxable gains will be lower. A long-term investment is defined as owning an asset for one year or more, while a short-term investment is when an asset is owned for less than one year. The U.S. government taxes long-term gains at a rate of up to 20%, depending on your income. Most taxpayers pay 15% on their long-term gains. Short terms gains can be taxed at a rate up to 37%, with most taxpayers paying between 22% to 24% on their short-term gains. Over the years, short-term taxes on capital gains will most definitely eat into your total gains.
Second, long-term investing is much less stressful than short-term investing. With short-term investing, participants are constantly checking their positions, making trades, and changing their theses. This can have the effect of deteriorating psychological health due to the stress involved with trading. Short-term investors will also devote more time to trading than long-term investors, which will take away from time spent with family and friends. Instead, a better and healthier model would be to conduct due diligence before making an investment, such as analyzing a company’s long-term prospects, competitive advantage, and durability.
After the initial due diligence is complete, the investor can sit back and let the company prove itself. This doesn’t mean that no additional research should be done after initially conducting due diligence. Long-term investors should take note of quarterly earnings, annual reports, and any substantial announcements in between earnings. An investor shouldn’t sell a stock just because, for example, it declines 10% in a single day in sympathy with the general market. Rather, an investor should only sell out if they have legitimate doubts about the strength of their initial thesis.
Warren Buffet & Bill Ackman Embrace Long-Term Investing
Don’t take my word for it. Perhaps the most acclaimed hedge fund manager of our generation, Warren Buffett has made an entire career, and billions of dollars, on the concept of long-term investing. The Oracle of Omaha is well known for his belief that if you don’t feel comfortable owning a stock for 10 years, then you shouldn’t feel comfortable owning it for 10 minutes. Berkshire Hathaway has an average holding period of 6.7 years for stocks in its 13F portfolio.
Fund manager and billionaire Bill Ackman subscribes to the same doctrine as Buffett. In Pershing Square’s interim report, he noted:
The inherently short-term nature of the investment management industry is a large contributor to stock (and bond) market volatility.
Even investment professionals are prone to short-term mistakes, although these investors must deal with external issues, like liquidity providers withdrawing their capital due to bad performance. Ackman goes on to explain that asset managers sold off equities this year to meet redemptions, which contributed to the decline in the stock market. However, selling in times of temporary downturns is “precisely the opposite of what long-term investors should do.” Instead, Ackman recommends investing in companies with sustainable and predictable cash flows for the long term. These companies should be able to sustain downturns and hold a key advantage when compared to their competitors.
Pershing Square has an average holding period of 4.8 years for stocks in its 13F portfolio. Since its inception in 2004, the fund has returned 1,517%, compared to the S&P 500’s return of 1,375%.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
