Long Term Investing

In trading, it would be crazy to ignore price trends, technicals and sentiment. A lot better traders than myself will confirm that! On that basis, some long term opportunities may not be a buy. That’s if you’re trading it for a day, a month, or any short term period.

But if you’re investing in a business, for a period of at least 7-10 years, the chart isn’t so important. The prospects for the business and the valuation are what I’m focused on. If we were investing in a successful corner shop, or a profitable restaurant, we wouldn’t base our decision on a two-month stock price chart after all. We wouldn’t only decide to buy if the owner kept increasing his asking price either 🙂

A true long term investor will let the long-term business results do the talking, over a 7-10 year period 😉

Divine forecasting about the short term has never been my strong suit, but by avoiding this, I’ve also avoided “world will end with the fiscal cliff in January”, “debt clock will crush us all”, “RRL at £1 by Christmas” kinds of missteps. We’re all prone to making bad short-term forecasts, but I’m not in the business of losing money on these kinds of concerns, and focus on what I think the business will look like in a normal environment, 7-10 years out. I’d be wary of extrapolating a bad patch for a business into the indefinite future, or looking too closely about what will happen this year to commodity prices etc.

If I were holding stuff where there was a huge growth premium attached then I might be more worried. But nothing I own is priced above fair value, the companies are generally modestly undervalued.

Of course, this is entirely separate to trading matters, there are no right or wrong ways to approach the market.  In trading for example, sentiment is everything.  But where my long term account is concerned, I really have no interest to sell, bear market or bull market, so long as the business is fine and the price is fair 🙂   Just wanted to explain some of my recent purchases, and why the long-term view requires a different approach. Plenty of different ways to make money in the market over time…

Taking a long term investment view makes it more straightforward though – if I liked an operating business last year, I see no reason for that to change based on quarterly results, if I think the business hasn’t changed. Every company gets loved/hated by the market at one point or another 🙂

In the same sense, Next which I liked last year, I like just as much this year. The price in that case has gone up. That doesn’t make me like it more than last year – and I’m far less inclined to buy more shares. The business there hasn’t really changed either – the price, and sentiment, have changed considerably!

In the long run, 2013 and even 2014 are relatively inconsequential to any business’ true long-term value today. More than 80% of the business’ true value depends on what the business will look like in later years, such is the nature of valuation.