Investor A.D.D.

From 1940 to 1980, the average holding period that investors held on to stocks was as high as 10 years to as low as 4 years. Then in the 1980s, the holding period started to fall to as low as 1.5 years in the late 1980s, before a brief bounce to two years in the mid 1990s, and then it started to fall yet again. The average holding period for stocks now is 6 months.

Let me repeat that, in 2009 the average holding period that the average investor held stocks was a mere 6 months. With a time horizon of 6 months you are not an investor, you are a gambler. Because if you are holding a stock for just six months, you are betting not on a company’s fundamentals but on investor psychology and on prevailing market moods and trends.

I’m not here to moralize about this, but to present this as a tremendous opportunity. Investor A.D.D. and impatience is an opportunity of fantastic proportions as investors trade with the market, but not according to individual companies’ fundamentals. Let me give you an example.

I am building a new position in a cash cow of a company with a highly valuable recurring revenue business growing at 40%, with no debt and a lot of cash. In fact, the company is generating so much cash; they aren’t sure what to do with it. When the market started to weaken in mid-January, this company’s stock price suddenly fell 20% in a week on larger than normal volume. The company then released excellent earnings, higher than expected cash generation and increased guidance. The stock immediately recovered its losses and then some. Why was there so much selling before earnings? Investors or should I say “market gamblers” were moving with the market, not the company.

I continue to look to the long term and think there is a tremendous opportunity to arbitrage time and take advantage of the short-term thinking that so many “investors” are afflicted with. Cash doesn’t lie and accumulating a portfolio of cash generating companies at very attractive valuations will win out in the end.