Long Term Investing Appears to Have Gone Out of Fashion

Business Insider provides yet more evidence that much professional "investing" is actually short-term trading and speculation... The average holding period for New York Stock Exchange stocks has fallen to only six months (click to enlarge).

can we please stop pretending that what most fund managers are doing every day is "investing"? Holding stocks for six months isn't investing. It's trading. And because trading is a negative-sum game--one largely focused on trying to figure out what everyone else is doing--it is really speculating.

While you can place some blame on high frequency traders for skewing the data, Business Insider points to week-to-week performance benchmarking as one culprit. Our sell side experience leads us to agree, even monthly performance benchmarking is ridiculous for measuring fundamental investing given the vagaries of the market in the short term. The result is that a lot of fund managers have no choice but to engage in speculative trade-chasing covered by heaps of fundamental BS to maintain their firm's fundamental, disciplined image.

When you're speculating, there's no reason to pay attention to things like fundamental analysis, valuation, future cash flows, and all the other stuff they teach you in security-analysis school. For holding periods of less than six months, those things don't mean jack. Over holding periods that short, the game is all about figuring out what everyone else thinks and then gambling that you'll be right and they'll be wrong.

So remember that next time your favorite fund manager sends you a note patting himself on the back for his investing prowess. What he's really talking about is speculating.

Comments

[Paul Zimbardo:]

Am I the only who is surprised that the average holding period is as LONG as six months? Given the volatility in the market recently, I would have assumed that the average holding period was much closer to one month than to six.

It will be interesting to see if this trend reverses when the economy fully recovers or if permanent damage has been done.

Aug 09 09:34 AM

[SW Richmond:]

If 'speculating' is not 'investing', then the markets (especially the stock market) are not capital markets, but are instead casinos. If fundamentals don't matter, then such inanities as business plans, P&L, or even actual products and services don't matter either.

Such is the end game of the FIRE economy. Make nothing, sell things you don't own (because you don't make anything), tangle it up in a complex web of lies, and then cash out, leaving behind a blob of fission products that slowly decay into darkness.

Aug 09 10:23 AM

[Dave Wrixon:]

That's because at this moment in time the US doesn't have a long-term.

Aug 09 11:02 AM

[Steve in Gr...:]

Long-term investors have their money in gold and other currencies while we wait for the U.S. war on prosperity to play out.

Aug 09 11:19 AM

[bridanp2:]

Looking at the chart, I don't see much difference since 1990. The difference in 2 years and 6 months isn't much at all. Appears to me that the change really took place between '75 and '85 when the average fell from 6 years to 2 years. So we've been "speculating" for quite some time.

Aug 09 11:38 AM

[Donald Ingram:]

I would say one thing has been driving the markets and affecting the holding period - FEAR!

Aug 09 11:59 AM

[Paul H. M.:]

You think the U.S. will disappear.

Which nation is so much better off?

China is expanding their fiat currency at a rate 10x faster than us.

Japan, the #2 economy, is having issues similar to us.

Just because a speculative bubble burst, you think the world's largest economy will just shut down?

Sure, we might not be able to live as large (although anybody with money to invest is doing okay here) on average, but life in the U.S. is still better than any place on Earth.


On Aug 09 11:02 AM Dave Wrixon wrote:

> That's because at this moment in time the US doesn't have a long-term.

Aug 09 03:24 PM

[David Zanoni:]

Long Term Investing in stocks will never be out of style, because it is the proven way to beat out any other asset class over time. The recent 6 month trend was due partly to the unprecedented market volatility over the past few years, but also due to the lower broker costs and ease of online trading - IMHO. As volatility returns to normal levels, I believe that the 6 months will turn into at least 1 year, but I don't think that it will ever return to 1940s levels.

Aug 09 09:49 PM

[Denis Gould:]

A too short time horizon is the main reason why institutional investors fail to perform. It is why everyone got dragged into CDS, CDOs etc and got blown up. As a bond manager in 2006 if you weren't using these instruments you were considered a dinosaur. Keynes summed it up as long ago as 1936:

“It is the long-term investor, he who most promotes the public interest, who will in practice come in for most criticism, wherever investment funds are managed by committees or boards or banks. For it is in the essence of his behaviour that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

J.M. Keynes, The General Theory of Employment, Interest and Money, 1936

So for those who really can look long term, the opportunities are better than ever. And the big investing institutions will never get it.

Aug 09 10:18 PM

[dybydx:]

wow 6 mths on NYSE? when did the big board got demoted to day trading?

in my defence....
Disclosure: Long S&P

Aug 09 10:42 PM

[untrusting ...:]

Exactly, the equity markets are no longer captial markets intended to raise business investment and provide investor returns, but rather have become the "big casino". Given the markets negative equity returns over the past decade, is it any wonder there are few LT investors anymore? Several recent SA articles have show bonds and even treasuries have outperformed the equity markets when compared over many decades. And given the repeated scandals surrounding Wall Street over the past decade plus and the massive wealth destruction, it much more likely that the LT investor is an endangered species. With the aging baby boomers being badly burned by Wall Street and Wall Streets reputation probably permanently impaired ... it seems much more likely that the market will continue to move towards even more of a traders market for the foreseeable future. The LT investor probably has gone the way of the Edsel and other relics of the past.


On Aug 09 10:23 AM SW Richmond wrote:

> If 'speculating' is not 'investing', then the markets (especially
> the stock market) are not capital markets, but are instead casinos.
> If fundamentals don't matter, then such inanities as business plans,
> P&L, or even actual products and services don't matter either.
>
>
> Such is the end game of the FIRE economy. Make nothing, sell things
> you don't own (because you don't make anything), tangle it up in
> a complex web of lies, and then cash out, leaving behind a blob of
> fission products that slowly decay into darkness.

Aug 10 12:16 AM

[Vincent Fer...:]

from Paul H:
"You think the U.S. will disappear.

Which nation is so much better off?

China is expanding their fiat currency at a rate 10x faster than us.

Japan, the #2 economy, is having issues similar to us.

Just because a speculative bubble burst, you think the world's largest economy will just shut down?

Sure, we might not be able to live as large (although anybody with money to invest is doing okay here) on average, but life in the U.S. is still better than any place on Earth."

The US will continue to innovate and will become a stronger nation. People who think it's over misunderstand the US's most powerful feature- it's ability to change on a dime, adapt, and innovate. That innovation is still happening and always will as long as our silly government doesn't lock down the economy with rules. That's what got Japan stuck in the mud once institutions their calcified around the economy. China had a nice clean slate to work off of due to their very troubled past, but trust me they have their own problems which are much worse than the US and at some point their institutions might calcify as those in Japan did, or simply blow-up. I hope they manage them and become a prosperous nation with a high standard of living for the average man, but they will have to run past some pretty nasty economic and social land mines in the process.

Aug 10 02:05 AM

[Hot Richard:]

"The US will continue to innovate and will become a stronger nation. People who think it's over misunderstand the US's most powerful feature- it's ability to change on a dime, adapt, and innovate. "

But first, the US is pushing the accelerator to the floor in a car headed in the wrong direction. Worse times (specifically for the US$ and US equities) are not being averted.

People misunderstand the US's most powerful feature: closest thing to free markets on the planet (but they never were "free markets"). Well, that's been fixed. Capitalism is dead and a free market economy is a bad joke.

Change on a dime? We're not talking about Microsoft going after the browser market. We're talking about debt that cannot be paid, government that is trending toward infinity, and full embrace of socialism (when not embracing facism). That better be a dime the size of a few decades.

Aug 10 10:56 AM

[Hot Richard:]

Innovative? Just because you Americans cut two arm holes in a blanket and sell a bunch on TV doesn't mean you're "innovative".

See how much innovation you get with a 60%+ confiscatory tax rate in the war against competence. Gotta prop up all those politically connected businesses that fail.

Aug 10 11:00 AM

[T.Stamps:]

With the government printing of money and getting it into
the stock market via the banks, I don't trust these government
puppets. Especially this administration, they want almost
total government control. Fascists

Aug 10 01:16 PM

[consumerons...:]

Any of you clowns remember what the ARTICLE was about? How about a comment on that?

Aug 10 08:24 PM