“The single greatest edge an investor can have is a long-term orientation.”
-Jesse Livermore
I’ve been investing for 20 years now. The first few years were painful ones spent learning lessons the hard way. I tried day trading and picking penny stocks. And in both cases the results were… not good.
Even once I started only buying high quality companies, I still didn’t make much money. I bought Apple in early 2009, for example, and sold once it was up around 70%. I did the same with Netflix. If I had held onto those two, the returns over the next decade-plus would have been mind-numbing.
So the most important lesson I’ve learned is to always invest for the long-term. When you have a high quality investment that’s doing well, it’s almost always best to keep holding — and sometimes to buy more. These days I reject the saying that it “never hurts to take profits.” Sometimes it does. As Warren Buffett says, “Our favorite holding period is forever.”
So now, even when I (rarely) do take some profits, I always leave some on the table — usually the majority of the investment. I try to hold my winners for as long as possible.
I’ve applied these principles to my crypto, stock and other investments. And it’s worked out quite well so far. The average holding in my stock portfolio has been around for about 8 years now.
This approach reduces the risk of emotions getting in the way of profits. When investors let their emotions drive short-term decisions, it usually doesn’t turn out well. I’ve seen lots of smart friends try to time the markets, which is incredibly difficult — especially in volatile areas like crypto. It’s extremely challenging to be successful doing that.
Short-term trading is also incredibly tax-inefficient. If you pay short-term capital gains on every profit, you’re essentially doubling the taxes you owe. So even if you do manage to make a lot of money on your trades, you might still end up down from where you’d be with a long-term buy and hold strategy. I believe it’s much better to defer the taxes for as long as possible by holding.
My long-term orientation is also one of the reasons I love investing in private startups so much. With these types of investments, you’re basically forced to buy and hold. So if you struggle to buy and hold liquid investments (like stocks or crypto), it might make sense to consider dedicating a small portion of your portfolio to private startup investments. They can act as the long-term speculative growth section of your portfolio.
Holding investments long-term isn’t easy. But I do believe it’s the most important step any investor can take to make money. And of course, I recommend reinvesting your dividends using a dividend reinvestment plan. The power of compounding returns can be truly incredible over extended periods.