Holding period

This subject ends where it began: a share is a fraction of a business, and a business takes years to do anything. Your holding period is the decision that determines whether you own the business or trade the opinion.

What time does

Over a single year, an equity return is dominated by the change in the multiple — chapter 2's second door. Opinion can swing wildly in twelve months, and earnings usually cannot swing enough to offset it. The range of one-year outcomes is very wide.

Over a decade, the arithmetic reverses. Ten years of earnings growth compounds into a large number, while the multiple can only move within a range — it cannot triple every decade indefinitely. The business dominates, and the range of outcomes narrows.

That is the honest case for a long horizon, and note what it is not: it is not a claim that equity cannot lose over ten years. It can, and has, in enough markets and periods that anyone promising otherwise is selling something. It is a claim that the source of your return shifts from opinion to performance as the horizon lengthens.

What time does not do

It does not fix a bad business. Holding a deteriorating company for ten years produces ten years of deterioration. "Long term" is not a thesis.

It does not remove the need for the money. If you will need the money in three years, a ten-year argument is irrelevant to you — the horizon is set by the money's purpose, not by your patience.

It does not make a fall painless. A 40% drawdown in year six is still a 40% drawdown.

The cost of turnover

Each round trip costs three things, and they are all quantified elsewhere in this course:

The spread — chapter 7 of the markets subject. On a thin stock, several per cent.

Brokerage and statutory charges — small per trade, large when multiplied.

Tax — realising a gain triggers it. An unrealised gain compounds on the whole amount; a realised one compounds on what is left after tax. The tax subject covers the rates; the effect is that frequent trading pays tax repeatedly on the same growth.

None of those is a reason never to sell. They are the price of changing your mind, and the price is worth knowing before you form the habit.

The gap nobody mentions

There is a well-known and uncomfortable pattern: the return an investor gets is often lower than the return of the fund they were invested in.

The mechanism is not mysterious. Money arrives after good performance and leaves after bad, so the average rupee is present for more of the falls and less of the recoveries. The fund's published return assumes you held throughout; almost nobody does.

That gap is behavioural, and it is the largest available improvement for most people — larger than fund selection, larger than asset allocation, and it requires no skill at all. It requires not acting.

When selling is right

This site does not tell you when to sell. It can name the reasons that are about the business rather than about the price:

• The reason you bought is no longer true.
• You need the money for what it was for.
• The position has grown so large that chapter 9's arithmetic applies.
• You were wrong, and you now know it.

"It has fallen" is not on that list, and neither is "it has risen".

The point

A year is opinion; a decade is performance. Time shifts the source of your return from what people think to what the business did — and the horizon is set by what the money is for, not by how patient you feel.