Warren Buffett Reveals Why Investors Need to Focus on the Long-Term
Warren Buffet is arguably one of the best investors in the world. For the past 50 years, he has amassed returns of 20.8% per annum for his company’s shareholders.
One of the secret sauces for such high returns is his patience in the stock market. He is well-known for holding his companies for the long-term.
For instance, Buffett first bought shares in The Coca-Cola Company (NYSE: KO) more than 25 years ago and still owns a considerable stake in the beverage firm.
On that note, let’s look at three quotes from Warren Buffett on long-term investing that will be useful for investors.
1. “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
Warren Buffett despises short-term trading. Businesses take time to grow, and we should only buy a business if we are willing to hold them for five years or more. In fact, Buffett has often been quoted as saying his holding period for a stock is forever.
On the contrary, many investors think short-term and how they can make money in the next few days or weeks.
Jeff Kleintop from LPL Financial revealed that the average time frame someone held a stock in 2012 was just five days. I reckon the average time frame would not have changed much now. In comparison, in the 1960s, the average duration was eight years.
How can an investor expect a business to grow considerably in less than a week?
2. “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a fly epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
Stocks tend to rise over the long-term, despite the vagaries of the economy.
Over in Singapore, the Straits Times Index (SGX: ^STI) plunged close to 60% during the depths of the Great Financial Crisis from 2008 to 2009. Despite that, the index has since recovered to produce a gain of 108%.
There will always be negative news to spook the stock market every now and then. However, if we focus on the long-term, these short-term blips will not matter.
3. “Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
It requires a considerable amount of time for a business to flourish. Focusing on the long-term forces us to think about the quality and fundamentals of the business we are investing in. If we have an “investing” time frame of just one month, we would be forced to think about the stock price only, and this will be to the detriment of our stock portfolio.