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Reflections On Long-term Investing

05.12.19

Long-term investing is the process of buying and holding investment securities you believe will compound investor wealth indefinitely into the future.

“The single greatest edge an investor can have is a long term orientation.” -  Seth Klarman

Individuals have the luxury of thinking and acting in terms of decades, an unheard of time frame on Wall Street. The ability to be patient and disciplined while extending your time horizon can be a huge advantage. It’s all about harnessing the power of thinking long term, cutting down on unforced errors, and having the patience to allow compound interest to work in your favour. The question is ‘how does one go about this?’

Here are a few thoughts that will help.

When you approach stock purchases as if you were never going to sell, it forces you to be very selective in which businesses you will invest. Long term investing puts a spotlight on what really makes the long term prospects and competitive advantage of the business.

As I have often stressed – ignore the noise. Paying attention to daily stock price fluctuations causes investors to over react to minor events that have no impact on the long term earnings prospects of a business. If you can focus on the underlying business instead of the daily stock price you will be well on your way to becoming a long term investor.

Another thought is to take advantage of the Lindy Effect, which probably few people have ever heard of. The Lindy Effect states that things that have proven themselves to have staying power are likely to be around longer than things that haven’t proven their staying power. In other words, a business that has been around for 50 years will likely be around for another 50 years. When you invest for the long run you need to invest in businesses that have staying power, high quality companies with sustainable, competitive advantages. Having a sustainable competitive advantage is the only way a company can maintain high returns over a long period of time.

One of the biggest advantages of long term investing is minimizing frictional costs (fees and taxes). Every dollar you save in fees matters because of the maths of compounding: a dollar saved today is worth $2.59 in ten years, and $6.73 in 20 years, if your money compounds at 10% a year.

Perhaps the hardest aspect of long term investing is patience. Businesses don’t double in value overnight. Investing in high quality businesses is not an immediately gratifying experience. Investors who are able to withstand price volatility and patiently wait for the price of a stock to match underlying business growth earn the returns they deserve. This process takes time.

Perhaps the single, best suggestion for long term investing is to continuously educate yourself. The more you learn about investing in general – and long term investing in particular – the easier it will be to practice this method of investing.

We believe at Holdun that high quality dividend growth stocks with strong and durable competitive advantages offer investors the best available mix of current income, growth and stability.

Long term investing requires conviction, perseverance and the ability to do nothing when others are being very active with their portfolios.

To learn more about Holdun Family Office click here www.holdun.com

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