23 August 2020 | Eugene Ng | Founder & CIO | Vision Capital
We often hear financial media sharing Invest for the long-term, and we are all familiar with much advice to tell us to invest for the long term. Such advice does make a lot of sense, but why is it really the case?
“When we own portions of outstanding businesses with outstanding managements, our favourite holding period is forever.” — Warren Buffett
Stocks go up over the long-run
When you pull out a long term chart of the stock market, like as 148 year one in our case, the stock index starts in the lower left, and it always goes to the upper right of each chart. Do that for any long term chart (at least 20–30 years) across any time horizon, and you are likely to see a very similar chart.
In the short-term, the market can go down faster than it goes up. But over the long-term, the market goes up more than it goes down. The long run is the only term that counts and matters to us. That is why we invest that way.
The longer the time horizon, the lower the probability of loss
Invest for the long-term where Wall Street does not play. The longer your investment holding horizon, the higher the probability you will have a positive return. In fact, holding periods of a single day were essentially a coin toss (52% of those days earned positive returns with a slight positive skew). But investors with longer horizons fared much, much better. 88% of 10-year holding periods were positive (not a typo) and 100% of 20 and 30-year holding periods made money.
So, do not invest in the short-term (up to 1–2 years) where Wall Street plays, better still, don’t try trading and timing your buy and sells when it comes to Investing.
In Summary
Investing long-term is the advantage you have as an individual investor that Wall Street does not, so make full use of that advantage.
Tilt the mathematics, probability, and odds of making money investing in your favour. Investing with horizons greater than 10 years (or even longer if you can) is the first secret. Do you want to play a game with a loaded dice that 88–100% of the time you will win?
As always, Warren Buffet put it best: “The stock market is a device for transferring money from the impatient to the patient.”
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