In the 1950s, the average holding period for stocks was over seven years. Not surprisingly, that number has been falling ever since—current estimates put the holding period at around 4-8 months.
The vast majority of investors are focused on the next quarter or the next year, which is mostly just noise in terms of what really matters to a company’s value. It’s not uncommon that a company’s terminal value is 70-80% of what it’s worth today. If how a company will perform 10-20+ years from now makes up most of its value, then the most important factor when choosing companies to invest in is how durable their competitive position is over the long-term, which often has very little to do with near-term results. Even so, it’s not a surprise that so much of Wall Street focuses on the short-term.
Continue reading “Time Arbitrage as a Competitive Advantage”