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Why ‘short-termism’ is hard-wired in investors (and why it’s bad for their wealth)

At the start of a new year, investors tend to ponder the prospects for the subsequent 12 months. It says something of how short term the focus in markets has become that this may be one of the relatively few occasions when many investors even think that far ahead.

One of the understandable yet unhelpful consequences of the financial and sovereign crises has been the short-term focus it has encouraged in many investors. Add in the use of monthly and quarterly investment performance to evaluate progress and the market’s relentless focus on quarterly earnings, and it’s easy to see how short termism has become a baked-in feature of stock markets.

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