We all know investing is a long-term process. Buy quality and hold it for decades, giving it time to grow, mature and pay out chunky dividends. Any number of great stocks — even a couple of high-flying ones — would qualify for this approach.
But a series of articles, starting with a Reuters investigation in 2012, has shown that the holding period for investors has been shrinking. In the 1930s the average holding period for a stock was about a year; by the 1950s it was around eight years. The average holding period is now 5½ months.
These stats are from raw New York Stock Exchange trading data, and much of this compression in the time frame is as a result of high-frequency trading, which often means holding for just a few seconds.
But think about your average holding periods and how quickly you’re prepared to ditch a stock that has either flown higher or wobbled on the first sign of bad news.
Of course, sometimes ditching a stock is the right move. Spar is trading at levels similar to when Bafana Bafana last played Mexico in a World Cup opener. Yep, nothing but dividends for 16 years.
This all goes back to Warren Buffett, who has many thoughts around holding long term, with my favourite being: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
Holding winners is often the hardest part of investing
Once upon a time, the system was designed for long-term holders. You needed to phone your broker, who’d then send your order down to the trading floor. Settlement was only the following week, and share certificates were posted. All of this created friction that no longer exists. In the online world I can buy and sell in seconds.
But this should not change our thinking around how and why we invest. It’s about quality at great prices and time to grow. I have written before about Combined Motor Holdings (CMH)* and how it has delivered average returns of 20%-plus a year for decades.
On the other side of the coin is Capitec, a more thrilling investment, going from around 200c at listing in 2002 to about R4,500 as I write. But you had to hold on for that exceptional return. Deciding it was overdone to the upside and selling would have sharply reduced the return, as a lot of the heavy lifting has been in the past few years.
Holding winners is often the hardest part of investing. The desire is to lock in that gain, whereas the right response is to congratulate yourself ... and do nothing.
Holding over the long term can be difficult; it can also lead to losses (yes, look at Spar). But it is where the real returns are made. This is true even for the high-flyers that eerily defy gravity at times.
*The writer holds shares in CMH
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