In a world of ever shorter holding period of stocks...

Bonjour,

As I was reviewing my own portfolio moves in 2014, I concluded that I did well holding some assets longer than I expected initially, despite sometimes a lot of negative noise surrounding these holdings.

Nowadays, news are plentiful and hit us in the face every second of the day. 

Therefore, one can have a great temptation to do something to react to news.

You may be familiar with the Dalbar study, showing that the average investor is holding his/her mutual funds for a too short period.

In case, you need a refresher, click here for a link to a Forbes article summarizing the findings. 

However, this could be rather a recent phenomenon (my thesis), which could have been favoured by the development of the mutual fund industry.

If you look at individual stock ownership period through time, you will notice that it too has been trending down over the last decades.

This is a graph of the average holding period of a US stock through time:

You will notice how much more trading the average investor (professional or retail) is doing.

The inflexion point in 2009 is probably linked to people remaining invested after heavy losses.

This is not only a US phenomenon as the next graph will tell you:

 

See how the Japanese investors have became a lot more impatient in the mid 90’s?

Maybe this is not a coincidence that in 1996, Bandai, a local firm, invented the Tamagoshi! You could own a virtual pet every few months!  

A Tamagoshi for those who forgot

A short holding period may be a consistent strategy but often, it may reveal the lack of strategic planning.

Instead of looking at long term strategic goal, one may be tempted by “get rich quick” tips. This is usually the surest way to underperform.

I am sure that among your friends or clients, you have some who lost money with such schemes: carbon trading, woodlands in emerging markets, solar bonds, you name them.

Sometimes some investors even lost more than half of their savings to such schemes.

I believe this is where ou need to have a long term strategy and stick to it.

I am still a work in progress but I am very proud of my longer holding periods at the moment.