I’ve been thinking about one of Warren Buffett’s quotes: “Only buy something you’d be perfectly happy to hold if the market shut down for 10 years.” That’s truly long-term investing. This has led me to consider time frames relating to investing and trading.
For an investor the aim is long-term growth in stocks, in profits and ultimately in the share price.
Some suitable shares for this are easy to identify. Take Shoprite*, for example. We know that people will still be eating a decade from now and that Shoprite will almost certainly still exist. Of course, it may lose some market share during that time, and margins may contract. Both would hurt profit growth. But based on the company’s track record, they are low probabilities. Sure, an instance of fraud could trip them up, as we’ve seen with a few listed stocks over the past few years, but that’s an even lower risk.
So the course that a dominant food retailer will run for the next decade is moderately easy to try to predict. In contrast, trying this with a gold miner would be near impossible. Where would the gold price be? Higher? OK, but what would the company’s profits be? Costs would also have increased over the period, and may at that time be squeezing margins.
The point is that predicting what will happen tomorrow is hard enough, and the further into the future we try to peer the harder it gets. What we need to consider are the big key trends; that makes it easier. Trends tend to continue — think of them as large ocean liners. Once these are going at top speed it takes time for them to slow down, never mind turn around.
Think of trends as large ocean liners. Once these are going at top speed it takes time for them to slow down, never mind turn around
Back to Shoprite. Expansion into stores for lower-income customers and into ever increasing online delivery options work in the company’s favour, and so do improving efficiencies. We need to find these themes, and after that the stocks that are winning in the space.
This is why I always advise people to buy the winners, not those in second place in the hope they’ll become No 1. Pick n Pay has been trying to win its No 1 status back from Shoprite for about two decades, yet has only fallen further behind.
Trading time frames also matter — a lot.
When we first fire up our trading platform we tend to look at short time frames, often intraday time frames. This is fast moving and fun, but hard. Very hard.
As we expand the time frames, things get easier, as again we’re looking at trends that will play out over a period.
A year ago I bought Mr Price* for a trade (the share, not a derivative). It has risen well over 50%. If I had been trying to time intraday moves I could perhaps have made a much better return, but it would have taken hours a day, had a much higher risk, and there was the possibility that my return could have been negative.
So a longer time frame is hard, but always better. Just make sure the long-term trend is clear to see and has real potential for longevity. And remember, every trend can end at some point.
*The writer holds shares in Shoprite and Mr Price
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