Long-term vs. short-term

Long-term horizon guarantees successful investments

Arguing if investment horizons should be long-term or short-term is intrinsically linked to the issue speculation versus inversion. Speculators tend to follow the short-term because they search for few days or even few hours (intraday trader), in order to generate capital gains. They usually speculated with signals provided by technical analysis. It can come to a point that they aren’t interested at all in the company or the underlying index; they are just selling or buying.

Sometimes inexperienced investors can act viscerally in the short term without being speculators, confusing activity with results. They think that by constantly buying and selling profitability is obtained, when it is often the opposite. The same investor is speculating in counter-cycle without even realizing it. The news informs that a particular action is up or that the market boosted so the investor decides to buy (often at the highest price). After a few days go by, market corrects and the investor begins to lose, gets scared and sells at a loss. Markets continue falling, however, the investor is frightened from the former experience and doesn’t take positions when the market offers opportunities to buy cheap. After a while, when markets are back on top the investor is again carried away by greed… Probably the investor will repeat the cycle until going bankrupt or moving away from markets.

Speculators hunt for immediate returns, this generally has poor results. We can find a good example back in time of what happened in the year 2000 with the dotcom bubble.

On the opposite side we have long-term investors. This type of investors usually takes positions after a more or less exhaustive study and after becoming reasonably sure that by doing this, additional value will be reported. Generally, they assume this value becomes effective in a long period of time. Warren Buffet (WB) is one of the most successful investors. He is characterized by investing in companies as if he was an entrepreneur. This strategy is often referred to as “Buy and Hold”. Many of his famous quotes are related to this vision:

If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.”

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”

Not for nothing, WB is a faithful disciple of Ben Graham (BG) who said:

“The individual investor should act consistently as an investor and not as a speculator.”

Long-term investors aren’t always right. However, they are disciplined and leave enough time for their investment assumptions to develop or not. They only divest if their initial hypothesis is cancelled or if they detect much better opportunities. This way, the success ratio increases considerably. We mustn’t forget they are playing with advantage, they know markets have a “natural” uptrend tendency.

How to invest, Inbestme’s Scope:

Inbestme is in line with Warren Buffets investment horizon vision. For sure, our investment horizon is long-term. Our experience as speculators (we admit it, as fans) has never reported satisfying results that compensate the effort of being many hours in front of a screen looking at buying and selling signals, especially after deducting transaction costs. Many studies prove that failing as speculators is quite widespread, and that the only guarantee of success in the world of investments involves creating a systematic plan with a long term vision.

Statistical facts show how volatility is diluted in the long-term horizon and in which any investor will find reward especially if they follow Warren Buffets steps and are able to select companies with high competitive advantages.

Our advice to those savers that are thinking of buying stocks with money they might need in less than three years, is to forget investing and especially forget about speculating. You should leave your money in a savings account or other short-term savings tool.

On the contrary, we do recommend that any saver with an amount of money that won’t be needed in the short-term to invest it as soon as possible. Nowadays, leaving your money in a deposit guarantees operating at a loss: this is because money loses value over time due to inflation.

Starting with 10,000 €, it is possible to create efficient portfolios that will generate additional returns over deposits if we have the investors patience. It has been shown that markets reward consistency. This is what we propose for our diversified portfolios.

We strongly suggest that you establish an investment plan with an initial amount of money, with a long-term horizon and with regular annual, biannual (or even better monthly) contributions. This combination guarantees success and it is also a great way to plan for retirement as the magic of compound interest is “the most powerful force in the universe (Einstein’s quote). Peter Lynch said “I don’t know if the next 1,000 points on the Dow Jones will go up or down, but I’m sure the next 10,000 will go up.”

If you’ve earned some money, follow a long-term horizon and are willing to take practical training, it is completely possible to invest like professionals do so. This is what we propose for our customized portfolios.

Inbestme is your online financial advisor. Know your investor profile and start investing as soon as possible. We help you take better control of your finances.

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