Sooner rather than later?
In 2022, the typical investor held shares for 5-1/2 months. In 2019, it was 8-1/2 months. In the 1950s, a typical investor held onto their shares for eight years on average. See here and here.
It is simple to say that increased access to information, to the ability to buy and sell instantaneously, to the competitive nature of life have all aligned to shorten holding periods. Needless to say there are numerous affects that result from shorter holding periods.
Firstly, a large amount of short-term capital gains taxes have been incurred. Secondly, I would guess many of the quick trades are losses–people don’t want to stick around to see a security increase slowly. They want it now or they bail out.
Short term volatility in the market means that there are, of course, no guarantees. The shorter the holding period, the more likely to incur losses.
Consider the following statistics regarding the percentage of time the market experiences positive returns.
Since 1926, the U.S. stock market has experienced positive returns:
56% of the time on a daily basis
63% of the time on a monthly basis
75% of the time on a yearly basis
88% of the time on a 5 year basis
95% of the time on a 10 year basis
100% of the time on a 20 year basis
While these numbers show returns for the entire market, it is not a determination about any one particular stock or fund. And these gains can range from minuscule to substantial. Namely, a positive result does not guarantee a substantial result.
One of Warren Buffett’s famous oft-quoted phrases is: “Our favorite holding period is forever.” Needless to say, not everything Berkshire-Hathaway buys stays forever. They sell many many times. Every quarter there are numerous news articles in the financial press parsing his latest portfolio changes. While ‘forever’ is a favorite, it seems circumstances change fairly frequently.
For a dividend investor, ‘forever’ seems like a normal thing. I buy for income, not capital gains. As a result, much of the talk of short holding periods escape me. The longer I hold a stock, generally the more income I get. So, for me, long term holding is a given.
What is long-term for you? Let me know here.
The photo of two ladybugs going at it was taken in 2023 by the author.
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