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.
Aaron, do you have a link for those stats?
Also, a couple of commenters brought up PhotoChannel/PNI and Hemisphere on my blog a couple of days ago. I saw that you were still bullish on PNI in your VIC comments in December, and I guess Thursday’s call will shed some light on that one. Question for you about HEM though: assuming an investor is bullish on the precision ag macro trend, what’s your elevator pitch for why they should consider HEM versus one of its publicly-traded competitors as things stand now?
Things are changing faster now than ever. Over half the SP500’s market cap is made up of Tech, Financials and Services. The moats for these types of businesses are generally weak. A company can bring a product to market in a few years and it can become a staple of our existence (i.e. iPod) then it can be replaced just as fast. That sort of thing didn’t used to happen so much.
Remember Eastman Kodak? Fannie Mae? General Motors? At one point in time all of them were cashcows with good business plans.
Investors are just as stupid as they always were. I love Walmart stock. Whenever I pitch it to someone they say, “how much is it?” and because it’s $50 they think it can’t go any higher. I can pitch a stock like SIGA (on VIC) and they’ll eat it up because it’s $6. Hello?!?
Dave, on HEM, I think it is cheap and should have a decent year this year. You should do your own work and make your own decision if you decide to buy or sell.
Alfred,
Your mention of WMT brings up an interesting point, one initially made by Peter Lynch (and one that, coincidentally, came up in a conversation I had with an investor today). Lynch’s point was that the investors who make truly huge returns on a stock are the ones who had some personal connection with the company (e.g., those who knew the founder or some of the initial employees of WMT). Otherwise, they would have sold their stock when it doubled, or went up 10x, or even 100x. It would be great to buy and hold a company like that when its small and hold it forever. Those companies are rare and hard to find though.
Aaron,
Thanks.
Dave,
Walmart’s stock price has gone no where over the last decade. They have been and will continue to buy back 51,000 shares an hour – every hour the market is open. I’m worried there will be no shares left for my daughter when she gets out of college so I’m buying her some now. Peak oil? No, peak Walmart. Be scared, be very scared.
I love the new blog. Did you abandon the hackensack because of anti-Jersey sentiment?
Thanks for the compliment about the new blog(s?). Anti-Jersey sentiment wasn’t a motivator for me. Still a proud New Jerseyan. I wrote about the thought process behind choosing a new name in this post.