Long-term investing can produce outsized gains. Patience, though, appears to be in short supply amongst investors in the current environment. Just take a look at the summary below on how the average holding period for stocks in the U.S. has changed since 1940: https://twitter.com/SeekingDelta/status/673002646542925824 From the chart in the tweet above, we can see that investors in the U.S. had held their stocks for seven years on average in 1940. Sadly, that holding period has fallen to less than a year by 2010. Closer to home, there are investment funds in Singapore which may hold stocks for no…
Long-term investing can produce outsized gains. Patience, though, appears to be in short supply amongst investors in the current environment. Just take a look at the summary below on how the average holding period for stocks in the U.S. has changed since 1940:
— Isaac Presley, CFA (@SeekingDelta) December 5, 2015
From the chart in the tweet above, we can see that investors in the U.S. had held their stocks for seven years on average in 1940. Sadly, that holding period has fallen to less than a year by 2010. Closer to home, there are investment funds in Singapore which may hold stocks for no more than a few months at a time, on average.
Based on what we’ve seen, it appears that investing for the long-term may no longer be fashionable. To some investors, it may even be audacious to be thinking of investing for the long-term.
The power of long term returns
But, I would beg to differ. As I mentioned at the start, long-term investing can bring great returns. And, the results from my own portfolio also suggest that long-term investing is alive and well.
In the table above, I have summarised the five stocks that I bought in 2010 – that’s more than five years ago – and where they are trading at today. On average, my investment gains to-date are north of 250%.
Lessons from five years ago
The most important thing here is not the returns themselves, but the lessons we can take away from them.
Firstly, your level of stock trading activity may be irrelevant to your returns. The table above show the only five transactions that I had made for the whole of 2010, which works out to be less than one purchase every two months.
What matters more, in my opinion, are the companies that we buy and hold over the long-term (hint: the companies must be high-quality businesses).
Secondly, the returns didn’t happen overnight. A little patience was needed – patience to wait for at least five years. I have summarised the average returns for my five stocks (by year) below:
There had been years when the returns were less, and there had been years when the average returns were bountiful. The main difference, though, is the compound returns which were accumulated over time.
For some comparison, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund (ETF) which can be considered as a proxy for Singapore’s market barometer, the Straits Times Index (SGX: ^STI) – had produced a negative return from the start of 2011 up till yesterday.
Thirdly, the stock returns were made on the back of solid business results from the five companies. For instance, Priceline Group had increased its earnings per share by 363% from the end of 2010 up till yesterday. It may be worth remembering that a great performance in the business might find its way to the stock price over time.
My sentiments regarding long-term investing are summed up well by my U.S. colleague Bill Mann in his recent tweet below:
Bloomberg describes 2015 as a year nothing worked in investing. Know what does work? Having a timeframe more than 1 year.
— Bill Mann (@TMFOtter) December 29, 2015
Investing for the long-term is not as audacious as it looks.
If we focus on the right businesses for the long run, satisfying results are possible – at least, from where I stand. In the face of an unpopular timeframe, that is, the long-term, investing with years and decades in mind may be the last great advantage that individual investors like you and I have.
To be sure, there are more lessons to be learnt, but that is for another day.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Apple, Amazon.com, Priceline Group, and Intuitive Surgical Inc.