how long to hold investments Lessons for investors The short answer to the question ‘how long should I hold my investment for?’ is ‘as long as you think it’s fine idea’. In investing terms, a good idea is something that will make money, either through a rising share price or a rich stream of dividends.
So, the next time you’re considering selling an investment, ask yourself: ‘is holding this still a good idea?’. The answer is usually found by thinking about the company’s future prospects, not thinking about the price you bought at.
There are a couple of reasons why the phrase ‘buy low, sell high’ annoys me. The first is that it’s too obvious – you’d do well to make money doing the opposite. The second is that it encourages the common investing mistake of selling too early.
There’s a raft of academic research showing that investors are prone to bank a profit too early, meaning they miss out on any future gains. Of course, investors should always remember that conditions can change and what goes up can come down.
It’s worth taking a step back and remembering why you invested in the first place.
If it was to capitalise on a short-term opportunity, then by all means stick to the strategy and sell up. However, as a buy-and-hold investor, I never invest in something I anticipate selling in the near future. Choosing what to buy is hard enough, without immediately thinking about when to sell.
Instead, I only invest in companies I believe can sustainably grow their earnings over time. For a company that can do this, a rising share price is what I was looking for all along.
Provided I’m still confident in the long-term prospects of the business, nine times out of ten I’ll remain a happy holder rather than cash in.