Most investors focus far too much on the short-term. They look at how a company has performed in the last year, and they look at its share price movements over the past few weeks or months. They’ll read the news and follow the latest updates and then move in or out of shares based on what they think will happen in the months ahead.
Unfortunately most investors underperform the market by several percentage points a year, and short-term investing is one of the major culprits. To be better than average you have to do something different, and one key difference is to take a long-term view.
Long-term investing is a key component of some of the most famous and successful investors of the last century. It separates those who run around in circles like headless chickens from those who understand the timescales in which business and stock market cycles work.
Have long-term goals
Long-term investing starts with having long-term goals. Although most investors focus on the short-term they’re usually working towards a long-term goal. In most cases it’s a pension, and a pension is always a long-term commitment.
When you’re building up a pension nest egg it typically takes decades, and when you finally get round to drawing some income from it you want the income to last for decades too.
Investing is a multi-decade event. Don’t set goals for this week, this month or even this year. Think about 5, 10 or even 20 or more years into the future.
One consequence of thinking about the really long-term is that you might want to take less risk. After all, a stock never comes back from zero, and money lost that way can never be regained. Successful and defensive companies which have already existed for decades are often the investment vehicle of choice for long-term investors.
Analyse a company’s long-term past
Long-term investing should impact your investment analysis. If you want to be a long-term investor then the next time you’re reviewing a company, don’t just look at what it’s done in the latest annual report; look back further, much further. Go and dig up 10 years of annual reports and flick through them. Get a picture of what the company has done over many years.
Those investors who are willing to go the extra mile and review many years of…
