Short term madness

The average holding period of a stock on the stock market is only 7 months.

7 MONTHS!!!

Using some back-of-the-envelope math, that means that if a mere 2.4% of trading is done by long term holders (who hold an average of 4 years), then the average holding period of the other 97.6% of people is under 6 months!

That means that when you see the price of something you've bought go up or down, it is because the vast majority of traders--not investors--are only looking at how a stock will "perform" over the next 6 months.

But, what happens over the next 6 months is almost entirely random. How a company will perform over the next 3 to 5 years is based on underlying data. But, focusing on how stock will "move" in the next 6 months is not investing--it's just guessing at "price action."

Many investors have been shaken by recent price movements, and I have been, too. But, when I consider the fact that almost all trading is done by people with a focus on the next 6 months, I start to relax and focus on the long term.

When you aren't buying for the next 6 months--when you're truly a long term investor--you can focus on underlying businesses, and how they will perform over the next 3, 5, 10, even 20 years.

This is the way to invest.

Don't focus on short term price movements. Focus on the underlying business and how it will perform over the long term.

This won't prevent short term anxiety, but it may very well allow you to focus on the phenomenal growth prospects that await investors over the next 3 to 5 years.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.