Buying a piece of a company and holding it for more than a year has quite a few advantages. The advantages are not only monetary but also psychological. First two (below) are monetary advantages and the bottom two are psychological advantages. The first two advantages are of prime importance to retail investors at the beginning. Once you see your wealth build up a bit, the bottom two are of prime importance.
Advantages of Long-term investing.
- Your taxes are not immediately due
- Most likely you will see a positive return
- Less worries
- Good night sleep
Well, there is a catch. Not all long-term investing are advantageous. The consequences of long-term investing bakes well before you start your position. It starts with the right process and buying the right business and having the right mindset to have a gut and grit to hold it in favorable and unfavorable market conditions.
If you buy the wrong business, then long-term holding is the worst thing to do. You will be better off getting rid of it as soon as possible. Therefore using the right process is the prime importance to long-term investors. This indicates that long-term investing is a hard thing to practice. We are closely studying the characteristics of long-term investors to take advantage of the benefits of long-term investing.
Below is our unrealized Gain during the first quarter of 2019. There are no Short-term transactions. This indicates that our entire holding is held for more than a year.
Below is our Realized Gain during the first quarter of 2019. There are no Short-term transactions. We sold some of our long term holding in profit. (more on this in future posts)
We try to buy and hold our portfolio for long-term, however, time and again, we are just as guilty of short term speculation. Readers can make an interesting observation, rather unscientific, that very long-term holding are profitable here and beyond.
Characteristics
1. Patience
The number one trait of long-term investors is patience. It takes years and years of sitting still and doing nothing to be a better investor. Not all investors are born with this character. I certainly am one of them. However, deep learning of psychology has helped me a bit.
2. Keen to Learn
Investors are supposed to be life long learner. This is one character that defines how you evolve in the ever-changing business environment. Great investors spend the majority of their time reading and learning things. Reading does not only limit to investing, but it also goes to other discipline like psychology, science, economic and more.
3. Right Process
Great investors formulate a right strategy and more importantly stick with it. Long-term investors need to master the art of using checklists to minimize errors, which is the core of the best process. Value investing is another discipline which encompasses to follow the right process at buying stocks. Also, great investors have the process to sell stocks.
4. Emotional Control
Emotional control is probably the most important characteristics of a great investor. If you know every aspect of investing but get swayed by your intuition and force yourself to buy and sell at the wrong time, this is almost as bad as not knowing to invest at all (My psychological breakdown is explained here). Great investors should be contrarian. They should avoid herd if they want to have a better performance. They have to have a gut to disregard public and stick with their decision.
5. Disciplined
Long-term investors are all disciplined. They outline a process and are disciplined to use it even though the public does not agree with them. They act the same in bull markets and bear markets. The act of discipline goes hand in hand with the characteristics number 4. i.e. emotional control.
6. Financial Guru
Accounting is the language of corporate finance. Every great investor should know it. It enables investors to look and find the right company. Once a company is bought, investors have to periodically check and evaluate the relevance of the company. The only way to check its financial health is by applying grueling analytics to its financial statements. This can only be done by the financial guru, who is an expert.
Learning how to read and make sense of the financial statements is the first step of being a great long-term investor.
Final Thought
Even though most sensible investors know the advantage of long-term investing, it is difficult to practice and nerve -wrecking at times. I suffer from the likes of the psychological moron. I am not a financial guru. I barely know how to make sense of financial statements. And to make things worse, I have no concrete plan.
After realizing my shortfalls, I took shelter of diversification which yielded me alright (Here). Luckily better than the Dow Jones Index. But, I know this will not provide me enough protection had the market turn its course. My chances of missing opportunities are as great as in the year 2009 when they were amply available.
Having said that, I am constantly writing and rewriting (mostly copying from the experts) my strategy. My willingness to learn the language of accounting has never been this great. I am forcing myself to be disciplined and emotionally control. As I learn this age-old lesson, I feel the urge to share the same to the rest of the investing world of my circumstances.
Arrow of Performance 