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How long should you hold stocks for?

By November 16, 2016 No Comments

Warren Buffett has often said that his favourite holding period is forever. Another time he said: “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”[i]

When answering questions, Buffett often does so from the joint perspective of himself and Charlie Munger, his long-term friend, collaborator and vice chairman of Berkshire Hathaway. For instance, in 2008 when describing the type of companies he looks for, Buffett wrote: “Charlie and I look for companies that have … favorable long-term economics.”[ii]

Buffett also often quotes Benjamin Graham, his original mentor. Regarding the importance of holding for the long term, Buffett wrote: “As Ben Graham said: ‘In the short-run, the market is a voting machine — reflecting a voter-registration test that requires only money, not intelligence or emotional stability — but in the long-run, the market is a weighing machine.’”[iii]

Another time Buffett added: “Occasionally, the voting decisions of investors –amateurs and professionals alike – border on lunacy. Since I know of no way to reliably predict market movements, I recommend that you purchase Berkshire shares only if you expect to hold them for at least five years. Those who seek short-term profits should look elsewhere.”[iv]

One more quote emphasising Buffett’s long-term approach: “We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business.”[v]

Of course, these are just general statements about always looking for investments to hold for the long term. Objective evidence for their validity can be found in the quarterly 13-F filings put out by the company.

Currently Berkshire Hathaway has positions in approximately 50 public companies. In each quarter typically there are only trades in five or six of these (usually small sales presumably in order to raise more cash), perhaps an entirely new position (such as Apple in the first quarter of 2016), and perhaps the exiting of a position (such as Exxon Mobile at the start of 2015).

Analysis of these reports show that quarter on quarter the turnover of shares held by Berkshire is only around 2%. If we say this represents 10% per year, then the average holding period is approximately ten years.

Remember: If your average holding period is less than one year, you are a trader and not an investor.

Even a three-year holding period is a long way from the average holding period of Buffett.

 

Regards,

 

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P.S. Our average annual Conscious Investor return since 2000 has been 18.4% per annum, while the All Ords was only 8.2%. As a keen investor and someone looking to increase and protect your wealth, I am pleased to extend an invitation to you to attend a Teaminvest Information Session. The session is relaxed and I promise very interesting. Click here to see dates

 

[i] Buffett, 1996 Letter to Shareholders

[ii] Buffett, 2008 Letter to Shareholders

[iii] Buffett, 1993 Letter to Shareholders

[iv] Buffett, 2014 Letter to Shareholders

[v] Buffett, 1987 Letter to Shareholders

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