How long is long-term?

[ghotib]

Here's a poll for those who think of themselves as long-term investors. What does long term mean to you?

(a) 1 day to 6 months
(b) 6 months to a year
(c) 1 to 3 years
(d) 3 years or more
(e) for ever, unless the company's business changes
(f) depends on the company
(g) depends on the market
(h) other (please explain)

 

[Bingo]

Here's a poll for those who think of themselves as long-term investors. What does long term mean to you?

(a) 1 day to 6 months
(b) 6 months to a year
(c) 1 to 3 years
(d) 3 years or more
(e) for ever, unless the company's business changes
(f) depends on the company
(g) depends on the market
(h) other (please explain)

I think (d) three years or more. Obviously (f) and (g) are also appropriate. The main part of my portfolio consists of shares that I have owned for from 3 to 16 years. The oldest being St George Bank from the float from a Building Society in 1988 when it issued shares to account holders at $1.50 and was underscribed.

To me less than even 5 years is a change of mind in relation to the share in question.


Bingo

Bingo

 

[crashy]

c 1 to 3 years

 

[ghotib]

I forgot to give my own answer, which is (e) (for ever unless the company's business changes).

Bingo, I just noticed that you've been trading for yonks. Do you differentiate between trading and investing?

Hope other people will respond. This is one of the terms that really does mean different things to different people, and I think it can get very confusing.

G'nite all,

Ghoti

 

[Joe Blow]

I choose (d) 3 years or more.

Three years is a long time in today's world. Things move pretty quickly. I think investments need to be re-evaluated constantly.

 

[Garpal Gumnut]

I choose (d) 3 years or more.

Three years is a long time in today's world. Things move pretty quickly. I think investments need to be re-evaluated constantly.

It is interesting that the long term thread is so short in page numbers.

As a long term trader I sense a good entry point at the moment. The short termers are frightened by volatility and the medium term have long ago fled.

It is time for old money to reassert itself.

gg

 

[Smurf1976]

Until the original reason for investing no longer applies.

That could be due to the market, due the company, or because of personal circumstances.

 

[Joe Blow]

It is interesting that the long term thread is so short in page numbers.

A six and a half year old thread has risen from the grave and is walking amongst us!

The thread is short because ASF was populated by only a few dozen regulars at the time it was created and it probably died a quick death. Perhaps now it has been resurrected its true potential can be realized!

 

[Boggo]

I choose (d) 3 years or more.

Three years is a long time in today's world. Things move pretty quickly. I think investments need to be re-evaluated constantly.

Still believe 3 years Joe or have you reduced to 3 weeks with most of us ?

 

[Joe Blow]

Still believe 3 years Joe or have you reduced to 3 weeks with most of us ?

I'm of the same view I was in 2004, as I am still waiting for the last stock I bought in early 2008 to return to the price I paid for it.

I'm what you might call a reluctant long term investor. :

 

[jbocker]

The older I get the shorter it is getting.

Long term that is!

 

[Muschu]

Here's a poll for those who think of themselves as long-term investors. What does long term mean to you?

(a) 1 day to 6 months
(b) 6 months to a year
(c) 1 to 3 years
(d) 3 years or more
(e) for ever, unless the company's business changes
(f) depends on the company
(g) depends on the market
(h) other (please explain)

B. too volatile otherwaise.

 

[howardbandy]

Greetings --

My definitions --

If, after you take a position, you call your lawyer and have your will changed to reflect that position, that is an investment.

Everything else is either a trade or an expense.

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As I talk with people, I get the impression that "long term" is very subjective. A tongue-in-cheek definition might be: "farther into the future than they have thought about how they will exit."

Thanks for listening,
Howard

 

[Tyler Durden]

I choose (d) 3 years or more.

Three years is a long time in today's world. Things move pretty quickly. I think investments need to be re-evaluated constantly.

I agree. Things today are different from how they were 50 years ago - mainly the speed of everything has increased. With technology involved in everything these days, something can become obsolete within a year.

 

[danbradster]

Here's a poll for those who think of themselves as long-term investors. What does long term mean to you?

(a) 1 day to 6 months
(b) 6 months to a year
(c) 1 to 3 years
(d) 3 years or more
(e) for ever, unless the company's business changes
(f) depends on the company
(g) depends on the market
(h) other (please explain)

I try to hold for 1-2 years but sometimes only hold for a few months if the situation warrants it. I think of myself as medium term holder. Long would be 5 years and above.

 

[howardbandy]

Greetings all --

Opinions on what is long term will vary. But there are two conditions that should be considered related to holding period:

1. Expected drawdown increases in proportion to the square root of holding period.

Consider a trading system that takes trades in the S&P 500 index, or an associated ETF such as SPY. If that system is accurate enough, say the direction of the trade is correct 60% of the time, and trades held an average of one day, then over a four year period the account will have an average drawdown of about 12% measured close to close. The intra-trade drawdown will add about 1% more -- making the expected drawdown of trades that hold one day about 13%.

The expected drawdown when trades are held one week is about 21%.

The expected drawdown when trades are held one month is about 25%.

The expected drawdown when trades are held one year is about 39%.

If my trading account has risen to a maximum balance of $100,000, then has a drawdown of 39% while I am still holding positions, is that a severe enough drawdown for me to exit the position?

The percentages mentioned are the midpoints of the distribution of drawdowns. Half the time the drawdown will be more severe, half the time less severe. The result is relatively independent of the rise or fall in the overall market. Rather, it depends on the accuracy of trades. Drawdown is lower with more accurate trading, higher with less accurate trading. But there is no escaping the relationship between drawdown and square root of holding period.

Beware of using a single point, such as the average, without considering the distribution of results.

2. The balance of an account, saving account or trading account, when the returns are compounding is determined by exactly two numbers: g, the geometric return per holding period; n, the number of holding periods or compounding events.

The formula is: TWR = g ^ n

Terminal wealth relative equals the geometric mean raised to the power of the number of compoundings.

Note that the geometric mean is always less than the arithmetic mean.

Also note that the TWR is completely independent of the intra-trade characteristics. Any two systems that have the same values for g and n will have the same TWR regardless of the distribution of the trade results (consistent or inconsistent) and regardless of the intra-trade drawdown.

Holding trades longer reduces the number of opportunities for compounding.

Consider a system that has a geometric mean return of 1%. After 50 trades, the account is 1.01 ^ 50 times its initial amount. That is a 64.4% increase. The longer each trade is held, the longer it will take to compile 50 trades. A system that trades every week gets 50 trades in a year. A system that trades every year gets 50 trades in a lifetime.

-----------------------

Each trader should evaluate his method or system in light of holding period, distribution of drawdown, and compounding opportunities.

Of course, there are other factors. My point is that holding positions for long periods is not necessarily desirable, or the best use of a trading account.

Thanks for listening,
Howard

 

[tinhat]

I'd say around 25-30 years. That generational period should be long enough to get you all the way through one secular bull/bear cycle.

There are two generations of people in our family SMSF. One person is already in pension mode. I sort of look at investments with a 1, 2-3, 10 year horizon/goals in mind and I certainly think about my investments in terms of my needs which I hope will span another fifty years plus into the future.

I'll give you a few examples from my portfolio.

CBA - not going to sell it. Defensive. Aim is for better return than having the money in a term deposit. Don't plan to buy any more as it is the largest stock holding we have in the super fund.

BHP - this company is still in the planning phase for the Olympic Dam copper mine project which is going to take six years to remove the "overburden" - the dirt sitting on top of where they want to mine copper ore. If you believe that in the long run commodity prices set at marginal cost of production - as I do - then this is the one miner I consider a defensive stock. I aim to accumulate more BHP over the next couple of years.

MML - hope to hold this for years to come. One of the lowest cost gold producers on earth. Might accumulate more in the medium term but don't want to overweight the portfolio into it.

OZL, PNA - not thinking beyond the next 2-3 years for these ones.

FGE - who knows. Might even start taking out profits on this one.

WOW - probably better opportunities else-where. Might sell down in the next year or so when opportunity arises.

 

[nulla nulla]

Before November 2007, long term to me was 3 years plus. Since March 2009 long term is anything greater then 6 months. In my revised opinion if I am holding a share longer than that it is questionable as to whether or not the capital is being worked hard enough.

 

[megatron]

Long term means different things to different people or even the same person eg

Long run/term to an economist analysing an industry from an Economics standpoint has a different definition to the same economist if s/he was investing in shares in the same industry.

To quote John Maynard Keynes (an economist), "in the long run we are all dead"

So for shares, I read a week or so ago some commentator said BHP is a share that you can give to your kids when you die. Now, while I am not that old yet, that sounds like a long term view (ie the rest of your life lol). Similarly, if you are investing for retirement, that is long term eg however many years you have till you retire.

On the other hand, if you have an actively managed cfd portfolio, anything over a week can be considered long term.

Fund managers also have a long term of over 5 years to up to 10 years for share portoflios because they want to get fees, performance bonuses etc from your funds under their management so in their PDS, they will say the time horizon is 10 years due to volatility or something along those lines. If it was short term like 3 years in a bear market, it would be much harder for them to beat benchmark.

So in summary, long term is what you want it to be depending on your individual circumstances. There are no two ways about this.

 

[Value Hunter]

I would say f it depends on the company.

If you are investing in a cyclical, turnaround, asset play, takeover play, etc the holding period will be event determined.

e.g. if you invest in a low quality cyclical when the industry outlook is weak and earnings are poor then wait a few years for the earnings and share price to rise, then you sell. If you invest in a turnaround, once the turnaround is complete (assuming it is still not a high quality company) you sell. If you invest in asset play e.g. like GPG or Lemarne corporation over the past few years were, they sold off assets and distributed some cash to shareholders, once the asset value is realized you sell. Same as a takeover play, once the company gets taken over you are cashed out.

For genuine growth companies (including cyclical growth companies) e.g. Woolworths, Monadelphous, Credit Corp, Navitas, Seek, etc you buy and hold until the outlook for the company permanently changes and ceases to be a growth company, you then sell. That could be 5 years or 35 years.