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I often see people here saying if you are a real "value investor", your time horizon has to be 10 years. This saying is usually trotted out when stocks are going down. Just buy and hold, be patient for a decade.
Why anyone thinks this, I don't understand.
First, look at the long term charts of value stocks that eventually became big winners, and include the dividend yield. What percent were in downtrends or dead money for 10 years before they came good? Whatever that percent X % is, that means that 1-X % of big winner value stocks did not require investors to lose money and opportunity for a decade. Why not seek out those stocks instead?
Second, look at the newsflow, earnings, and estimates on those X % of stocks, during the year before they started their run-up. Were there signs that a diligent investor could have seen, to get them into the stock a year before it came good, rather than sitting in the cold for a decade? Why not put money-losing stocks on a watchlist and follow them carefully, instead of paying in real losses for the privilege of following them?
Third, time value of money applies to future capital gains. Go back to those long term charts of the decade-long loser names, recompute them to reflect the present value of the future returns at the start of the decade of nothing. How does that compare with the index return?
I agree that we have to be patient with our stocks, unless we are momentum or trend-following investors. I try to think of a portfolio as a farm. A third of the crops should be fully grown and ready for harvest now, a third should be growing crops looking good for harvest next year, and a third should be just-planted seed to feed you the year after that. How much should be ten years away from harvest? Maybe 5%, and it better be a tree that will bear gold fruit or something truly spectacular.
That's my viewpoint. I buy names that I think will make me money in one year, maybe two. Interested in hearing other views.