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The truth about long term investing
Fri, 22 Oct Pre-Open

The mention of a 'long-term investor' usually connotes only one thing. And that is that such an investor is one who holds his investments for a long period of time. However, there is another conception of a long-term investor that deserves more attention. Under this definition, an investor can hold his investments in stocks for a time period even as short as a month or two, and still be called a long term investor.

Further, this particular conception of long term investing has many implications for the long term investor. Including for the valuation of a company. Or in other words, for the price an investor should be willing to pay for buying shares in that company.

This long term investment is more to do with the perspective with which one looks at a company rather than the amount of time one holds it shares for. With a true long term investment horizon, you try to gauge the kind of returns or profits the company will make over a 10 to 20 year period. And on that basis try to arrive at a conclusion as to what would be the right price to pay for the company.

This is as opposed to a short term perspective on a company, where you obsess over what the company will earn in the next quarter or next year. And on that basis try to gauge what price will be the right one to pay for the company's shares.

This is how then, in the former, you can buy and sell investment even with a duration as short as a few days and still call yourself an investor with a long term time horizon. Infact, the time for which you hold the investment is irrelevant. The only thing that matters is what you think is the fair value of the company's shares after taking a into consideration a long term perspective of the company. Thus buying when it is attractively priced in relation to this fair value. And subsequently selling when it is overvalued with respect to the same benchmark. Whether this process happens over a span of 3 days or 3 years is irrelevant.

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