Invest for the long term

Your investment timeline is the best place to begin. How long do you think you need to remain invested to generate profitable returns? Let’s look at an example. Let’s assume you had the chance to invest in company, let’s call it General Widgets Corp (GWC).

GWC rise by 3,000% over the next two years, but it seems to be overheated. Let’s say you sell it and capture a 3,000% gain. Over the next two years, your decision appears vindicated because GWC loses more than 90% of its previous gains. Your decision to time your entry and exit made you an increase of 3,000% in this stock over four years. That is an excellent performance no matter which way you slice it.

If you mapped the performance of Amazon’s stock from 1997 to 2017, the stock has risen by more than 30.000%. What if you had simply bought Amazon and held it without bothering about what the market was going to do over the short term? Y9u would have netted a 30,000% gain by this time.  Suddenly, earning 3,000% over four years does not seem too attractive, does it?

Long term investment is what works best in the markets. Curiously, most long term investing is defined by a lack of activity. On a portfolio level, long term investors might be active. For example, Warren Buffett is not a passive investor by any means. He constantly looks at Berkshire Hathaway’s portfolio and buys sells companies or sells existing holdings.

However, at a position level, he is pretty much inactive. This is why he is held Coca-Cola since 1988 and made 1,750% in the process, combined with more than $7 billion in dividend payments. Plus, Buffett has maintained many of his insurance holdings since the 1970s.

Good things take time to grow and it makes no sense for him or you to attempt timing the market’s short term fluctuations. Prediction the short term is tough and this is where many investor go wrong.