Rachana Gaire: When They Say Long-Term Investment, How Long Do They Mean?

Fri, Jul 9, 2021 9:22 AM on Stock Market, Exclusive,

Rachana Gaire

Long-term investment means holding different assets like mutual funds, securities, shares, and stocks, generally for more than a year. Long-term investments are assets that a company intends to hold for more than a year. If you hold something for a year or less, it is considered a short-term investment.

The stock market is riddled with uncertainty, but certain tried and true principles can help investors boost their chances for long-term success.

An important question that many stock market investors ask themselves is "How long should I hold a stock ?". I will attempt to answer this question to some extent.

You should invest in a stock market for a minimum of 10 years, as the US markets have always made a profit over a 10 year period since 1955.

As a day trader, you may only hold a stock for a few minutes or hours (Editor's note: Day trading is not possible in Nepal's stock market). For investors, the minimum time to hold a stock is until it begins bearing fruit and returning a profit. However, you may choose to sell sooner if the stock exceeds your risk tolerance and begins to generate significant losses.

Warren Buffett bought more than $1 Billion in Coca-Cola shares in 1988 (33 years ago). Coca-Cola stock was hit hard by the 1987 stock market crash along with many others. Warren Buffett is still holding these shares and he famously said that his favorite holding period is forever. To this date, Buffett has got a return of 1550%, not including cash dividends. In 1988, Coca-Cola's share price was $30 per share. Today these shares are around $56.24 per share. Today, Coca-Cola is Berkshire's third-biggest holding. Coca-Cola heralded a change in Buffett's approach from "buying bad companies at great prices" to "buying great companies at good prices."

As Benjamin Graham said, "In the short run, the market is a voting machine, but in the long run, it is a weighing machine. Stock prices are mostly volatile and can heavily fluctuate in both directions. A keynote to know about stocks, in general, is that they constantly go up and down in the short run but have always risen in the long run (Editor's note: Some companies go bankrupt.) However, the amount of time that you want to hold your stocks will completely depend on your investment style and strategy. But holding stocks for a short period of time is rather considered speculating instead of investing. The length of your investment time frame will be based on what kind of investment style and philosophy you want to follow.

In the end, it all comes down to how you think about markets. It's often not as simple as putting a number on it. Investing should be approached as a long-term project rather than a way to get rich quickly, and you should be ready to hold onto your investments for a number of years.

I want to end this article with this quote from Warren Buffett:

"All there is to investing is picking good stocks at a good time and staying with them as long as they remain good companies."

Article by Rachana Gaire, a high-school student.