From 1940 through the mid-1970s, the holding period (the time from purchase to sale) for US stock investors averaged seven years. By 1987, that figure had plunged to under two years. By 2007, the average had dropped to seven months.
“Impatience is mounting,” observed Andy Haldane, the Bank of England’s Executive Director of Financial Stability, who shared these startling statistics as part of a speech he delivered at the Oxford China Business Forum this September.
If you think your personal holding period doesn’t matter, think again. Countless academic studies have demonstrated the costs incurred by investors who succumb to active trading. The landmark study was the classic, “Trading is Hazardous to Your Wealth.” In it, professors Brad Barber and Terrance Odean demonstrated that the most active traders’ annual returns averaged 11.4%, while the market returned 17.9% for those who remained patiently invested in it.
One of my most valuable roles as an advisor is simply to encourage investors to think twice before they trade. When it comes to the stock market, patience remains a virtue.