Starting with the quote
“All there is to investing is picking good stocks at a good time and staying with them as long as they remain good companies.”
- Warren Buffett
Long-term investment by Rachana Gaire
A long-term investment is a collection of different assets such as mutual funds, securities, stocks, and other equity securities, held for a period of more than a year. Companies invest in long-term assets that they intend to hold for much longer than a year. A short-term investment is something you hold for a year or less.
Investors face a lot of uncertainty in the stock market, but there are some tried-and-true strategies that can offer some assurance.
“Over the long run, how long should I hold a stock?” is an important question that many stock market investors ask. This question can be partially answered by me.
In the US since 1955, every 10-year period has resulted in profits for the stock market.
If you are a day trader, you may hold a stock only for moments or hours (Editor’s note: Nepal’s stock market does not support day trading). Holding a stock for at least a few months is the minimum time for it to produce and return a profit to the investor. In times when the stock starts generating significant losses, however, you may want to sell sooner.
Warren Buffett purchased Coca-Cola shares for $1 Billion in 1988 (33 years ago). The 1987 stock market crash foretold a hard time for Coca-Cola as well as many others. His favorite holding period is forever and Warren Buffett still owns these shares today. Buffett has achieved a return of 15500% without counting dividends.
During 1988, Coca-Cola’s stock was traded at $30 per share. The shares of these companies are currently trading around $56.24. The Coca-Cola Company is Berkshire Hathaway’s third-largest holding. “Buying bad companies at great prices” had changed to “buying great companies at good prices” after Buffett bought Coca-Cola.
Stock prices are mostly volatile and can fluctuate strongly in both directions at all times, as Benjamin Graham put it: “A stock market is a voting machine in the short run, but a weighing machine in the long run.”. Stocks tend to rise and fall continuously in the short run but have always risen in the long run. (Editor’s note: Some companies go bankrupt.)
It completely depends on your investment strategy and style as to how long you will hold your stocks. A short time period of holding stocks is considered speculating as opposed to investing. Based on your investment philosophy and style, you will need to determine how long you want to invest.
Markets are all about how you think about them in the end. Sometimes it isn’t just a matter of putting a number on it. If you want to get rich quickly through investing, you should think of it as a long-term project instead of a short-term one. You should be prepared to hold onto your investments for at least a few years.