Short-term investment, even a day-trade, may give you an incomparable pleasant sensation, as well as astonishing return. However, holding the stock for a long period of time (i.e. long term investment) is the only way to beat the market. Like Buffett, being the only one through investment to occupy one of the Top 10 richest people for more than a decade, who is the example of holding long term investment belief successfully.
Long-term investment does not only allow investors to enjoy the Compounding Effect, but also easily assure the largely-grow accomplishment in the stock market. "Buy low sell high" would be ideal for all investors, but in which is difficult to achieve. Sometimes we would like to sell the equity at high price and buy it at low price again. The stock market, however, continues to surge. Therefore, only 2 outcomes will be happened under this circumstance, miss the bound or buy in high.
Look at Hong Kong Hang Seng Index in the past 20 years (1987 - 2006), the annualised return is 10.8% given that no dividends count in. Examine an investor who used to trade frequently and just miss the largest boost day in each year, the annualised return will dramatically drop to 4.49%. Apparently, one is indeed unfortunate to miss every big day. Trade day with the largest boost, however, is usually followed by a big drop and most of the people will buy in at that time. Or otherwise, the investor may not miss that day every year, but there may be a number of days that the investor has missed over few decades.
Other than trading frequency, holding period is also an essential behavior in carrying out long term investment strategy, in order to beat the market. In the last 2 decades, the probability to achieve positive return in holding HSI a month is 60%. If the investment is hold for 3 years, the probability to achieve positive return from holding HSI will sharply increase to 80%. Therefore, the long-term investment advantage is obvious.
Certainly, long-term investment also possesses two major premises; they are "prospect" and "quality". Only a prospective market or a high-quality investment is worthwhile for long-term investment. Seeking these investments, however, is the most difficult task.
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