Investing for the Long-term

Long-Term Investing

When do long-term investments need re-evaluation?
Or,
How lucky -- and smart -- can you get?

People often state emphatically, "I don't care much what happens to my investments over the short-term. I bought them for the long-term."

Think about that statement.... And now follow this:

Assume you make an investment for the long-term today. Over a year or so it increases in value 3, 4 or more-fold. Is it wise to sell it in this, the shorter-term?

A logical answer may be derived by thinking through the following:

1.) What was your reasonable long-term (5 to 15 year) investment goal? Were you hoping for a 3, 4, or more-fold growth over the long-term?

2.) Would a 3, 4, or more-fold growth have been reasonable to accept for this type investment over the long-term?

3.) You have already reached your goal! Why? Was this investment caught up in a somewhat unusually strong market? Or, were you more lucky than smart? Or more smart than lucky? The important question is, "can this increased valued be sustained into the long-term?"

4.) If you sold to take an exceptional profit in the short-term instead of waiting through the long-term, your risk would be cut to zero and you could put the principal and profit in the bank or other investments as you find them. Or if you sold before the peak value was reached, you may be able to buy it back at some point if you are obsessed with having "left money on the table" and "not sold at the top".

5.) Probably the main reasons to hold this investment are to 1.) Defer taxes and/or 2.) To reap more profit. If your investment, the market or the industry go through a correction you will have:
A.) Let a profit turn into a smaller profit or even a loss;
B.) Have less of a tax problem.
(Since taxes are only a portion of gross profit, this
is not a good way to decrease your tax burden.)

This mistake is made when ego is wrapped around portfolios.

So what might you do the next time you have a long-term investment meet your goals in the short-term? Sell or hold?

Investment objectives must be reviewed frequently and analyzed:

1.) Is it still appropriate for my portfolio?

2.) Is it appropriate for my portfolio in today's market?

3.) Can the reasonable goals that have already been achieved earlier than dreamed possible be surpassed?

It may be wise to sell a long-term investment without waiting the long-term if the answer to any of the above questions is 'no'.

It may not be wise to hold an investment if it has gained more in the short-term than was rationally expected in the long-term. Those excessively fast gains can be caused by a bull market, a shortage, or some issue you cannot ever perceive. Factors can change instantly and leave you holding a loss.

See also: Timing

The investment axiom that is always valid: Caveat Emptor

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