Long-term holding

In One Sentence

Once you buy, let it sit. Don't get off halfway because of a rise, a fall, the news, or a feeling that "it's too expensive now."

Why It Matters

Holding for one year is like rolling the dice once. Holding for twenty years is like rolling them many times, and the results naturally tilt in your favor. Like many people, I used to believe that when stocks got too expensive, you should sell. Then I backtested that idea on long-run data from the US, Japan and Taiwan, and found it would have left me with less, not more. These days I sell only when I need the money to live on, or when my asset mix needs rebalancing.

One Number

For the US S&P 500 since 1928 (with dividends), if you bought in any month and held for 1 year, you came out ahead after inflation 70% of the time. Hold for 20 years or more, and it was 100% (Shiller data · author's calculations · Chapter V). But that is the US record: in Japan, buying at the 1989 peak still left you deep in the red after 20 years. The past doesn't guarantee the future.

In the Book

Chapter V gives it a whole section, "Time Is a Multimillionaire Maker," and the section after that explains why I no longer sell at the highs. Chapter IV lists time as one of the four ingredients of compounding.

Go Further

• Compounding Most of compounding's fruit ripens late.
• Patience and discipline What keeps you holding on is patience and discipline.
• The timing trap Trying to sell high and buy low is what most often cuts a long hold short.
• "Sell when pricey" backtest Backtests show that "sell when pricey" actually costs you.
• Philip Fisher He believed that if you'd done your homework right, you'd almost never need to sell.