What does Long Term Investing Mean?

Ask this question to people across different spectrum and you will get as many answers as there are spectrums.

  • Conservatives will tell you stock market is nothing short of gambling. It demonstrates lack of understanding what stock market really means.
  • Broker will tell you buy today, sell tomorrow. It shows what is the motivation; jacking up transactions and fees. Holding for more than few days is not in his interest.
  • I can go on an on like this …. but you get the point. Right?

We all want to succeed in making some good money, some quick money, and/or some money. It is my belief that most of the individuals will lose money in stock market over their lifetime. Whether we admit it publicly or not, it is a reality. I do not doubt that people sincerely want to succeed at investing, but the only issue is they do not know how. So they try to follow something that appears to be succeeding. A fund manager or business honcho mentions some stocks or strategy that is doing good in the market, and they jump on board. Only to realize later that they are late to the party. With little drop they jump off and then try to latch on something else, or many times they say, “I am out of the market”. It is a fashion to use market lingo’s.

The way year 2009 bounced, I am sure many of us will get bloated in our ability to time the stock market. Many of us will forget to put 2009 returns in proper perspective.

All this is because people really do not understand what is investing. In last few years, the meaning of investing has drifted from being a part owner of the business to mere a ticker symbol. I can say for sure that more than 90% of the people would not even know what ticker’s business model is. Ask them how this symbol (or the company behind it) makes money and they will be staring like what type of question is that? Since we do not understand that investing is part ownership, we do not believe in letting our investments grow.

We forget that business comes first and stock market comes later. The basic concept of taking ownership in business has taken a back seat. These talking heads, brokers, fund managers, advisors, et. al. have made us believe that buying and selling continuously is investing. Not a single talking head mentions about the fundamental aspect of buying shares to have partial ownership.

In every walks of our daily life, we have a craving to get that stuff “quickly”. There are every few who show discipline and dedication to work hard so that they can achieve their goals. Rest of us look for shortcuts. Generating wealth (and money) from stock market is by no means a shortcut.

In my view, stock market is a sure shot way of generating long term sustainable wealth. The only aspect that you have to understand is, businesses come first, and stock market comes second.

Investing means growing with the businesses you invest in, and this growth takes time. If you invest in good businesses, then it is consistent and sustainable. You will never lose your wealth or invested money. Stock markets are mere reflection of the strength or weakness of the business. And this is why investing is long term.

I used to play soccer for my school, college, and city level club. Our club coach (aka Mondal Bhai) used to say, “I know you all want to win. I also know you have a will power to fight for that win. But I do not need such boys in my team”. It was a shocker to hear that, isn’t it? He continued, “All opposing teams have that will power and desire to win”, “I want boys who have a will and desire to prepare for that win”.

I am willing to prepare for my investing success. How are you preparing to win?

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30 Responses to “What does Long Term Investing Mean?”

  1. chetan says:

    u said that business come first and stock market come after that….but many time we found that..some businesses very good but they dont have brand name …they doing well but still behind with peers who having more publicity in stock market…stock market price company not only with business but also brand name…people make decision with heart not brain..

    • TIP Guy says:

      Hello Chetan,

      You observations is reflection of 90%+ folks who get into this trap. It is nothing new. And that’s why these 90%+ are the ones who will keep losing money.

      I think you meant flair or flavor of the season ( and not brand) right?. A good business, and hence, good brand will eventually get appropriate valuation or may be premium.

      branding is long term (not short term). In short term, to me, they are just a flavor of the season.

      Best Wishes,

  2. Amit Kumar says:

    I like the post. But the fact is most influential dependents on market are happy if people do trading than investing. Like the “TV Channels” – who would watch them if they didn’t give daily tips. The brokerage houses – more transactions means more money. And its really funny when someone asks the “experts” – I am long term investor & can hold this scrip for next 30 days! Seems the definition of long term has changed.

  3. Sachin8778 says:

    Hi TIP Guy,

    An interesting post and very well said. I liked it. I too am willing to prepare for winning this game of investing 🙂

    Got rid of many stocks over last few months that were bought without any detailed analysis. Not to mention it gave good returns, everything rides with the tide.

    Now want to get it with long term commitment but not finding many opportunities so I guess will wait and watch. Did you spot anything new?

    Thank you,

    • TIP Guy says:

      Hello Sachin,

      good to know there is one more investor who is preparing to win 🙂

      at this point in time, the best is to keep looking, you will surely find something. Right now I have zeroed on Cords Cable and Praj Industries. They seem to look good. Still not made up my mind. Let me know, if you have any +ve or -ve thoughts.

      Best Wishes,

  4. Vikrant Upadhyay says:

    So true, Great post tip guy.

    I completely belief in that fact there is nothing called a Fast money, anything in life (money, relationship, career….and so on) takes time and patience for growth.

    That being said i would love to know your thought on the traders:

    There are not that many investors in the stock market as there are traders, and if everyone starts to invest for long term do you think the market will still go 10 to 15% every year? dont you think that the traders contribute a lot to our (investors) success. These are the people who (mostly) loose money or gain, giving us the oppurtunity to buy and grow our investments. Even if the business is doing well would the market move if there are no traders?

    Regarding how i am preparing, for now i am jsut reading a lot, and learning everyday specially from your post and trying hard to amke sure that my fundamentals and strong, i know this will also take time but i am willing to wait so taht i can win too.

    • TIP Guy says:

      Hello Vikrant,

      Common sense is not that common. Even in the developed countries with 300 million people, greed trumps common sense. So among a billion people, you will always have a bunch of them trying to do something different. Trading will always be there….

      My thoughts about traders? I don’t think they are bad people at heart or in their personal life, it is the principles of their profession that I do not like. There is conflict of interest. Let us leave it at that!

      Best Wishes,

    • arunsg says:

      Remember however, that every learning comes at a price – the guru-dakshina.
      Whether its losing money in stock market in initial days, or missed opportunities during period of learning, or late nights studying Ben Graham, or early morning reading TG’s posts [like Arun does 🙂 ] etc etc ….


      • TIP Guy says:

        I still can’t find my dakshina 😉 Once thing about Ben Graham…. we all keep referencing it… i have read it three times in last 6 six… every time all i get is …. buy cheap 🙂 Very easy to read, very easy to reference, very easy to say… but practicing it is helluva task… trying to use it for own investing portfolio requires… hmmmm…..

        • arunsg says:

          “Sell-high” which is the legally wedded spouse of “buy-low” is harder to please!

          I have bought at lows [ including on Oct 27th 2008 :-D] and all through lows of 2009. What I have not done very well is sell-high. That is something I am planning to correct in future…


        • arunsg says:

          Of course you have the GD.
          We all love you.

          Unless you tell us that it is not worth much, I’d say it is priceless, isn’t it ?


  5. Siddharth says:

    Nicely put. The idea of secondary market should remain that way.

    One example is that Buffet refused to split Berkshire stock for a long time to prevent speculators from trading his company. He always said he would rather have people remain invested in the “businesses” he held.

  6. "Doc" says:

    Dear TG,
    Well, well… what do you know, I actually hold a position in Praj [Hooray….feels good :-D] for quite a while now. I remember the lengthy discussion over nights with the missus about that industry, its growth potential, the future/projected earnings from present trends, and lastly collecting a lot of news articles on the company before deciding on the amount to put in ;-]. And all this was before , so there were no ready made market index curve with A, B, C, D and E indexed on various points…. So effectively the comment and your post made me jog down memory lane… I also had VST tillers tractors at the same time and in a moment of madness, sold this stock when the price dipped one too many one day. Today it is trading at 200% over my last sell price and I kick myself to this day. I am thinking of re-entering a position with VST. What do you think?

    Your post also made me realise how liberating it is actually, to be a retail investor as on date. Although, there is no end to the amount of stock portals in the market, Let us take the most common ones for this particular comment.
    1. Rediff Money provides for each stock, exhaustive list of various fund houses that presently hold a stake in the stock. Straight away, this could form an important yet rapid indicator if the certain stock is trading on hype or substance (for those who want an quick overview at the most).
    2. Google finance presents an stock price curve whose every ‘single’ contour is indexed with press releases about the stock. One can easily look at the market reaction to certain news items and learn on the essentials to concentrate upon (A little time consuming, but highly educative).
    3. Yahoo! finance provides historical EOD data in easy to use ASCII CSV format for 2-4 years for FREE. With a basic Excel literacy one could easily gather average stock price, price movement if any, just to name a few (This EOD data is a TA person’s wet dream, I can tell ya!). And this would also help in deciding if it is better to enter or wait a while.

    I will restrict myself to these points only, and one can see that it is not necessary to subscribe or spend any extra money for “inside” information. All this information can be got for free [assuming office internet surfing at lunch-time ;-}], and so one [read as “I” :-/] would expect that your post ought to be redundant if not obsolete. However, I realised after reading some subsequent comments and responses I decided to speak to some colleagues over the points raised (I am normally a ‘quiet investor’). It was unnerving that nearly 100% decide on a stock from TV channel reccomendations… :-O OMG! The horror! Trades are executed based on ‘tips’ from friends with no regards to the fundamentals. After a few minutes I actually felt depressed.

    So it is true: Common sense is not so common and the “very obvious”, does indeed needs to be fleshed out into an insightful blog post for the benefit of readers stumbing to your blog!

    The expression, “A Mad World, My Masters” [-Thomas Middleton] immediately springs to mind.
    Ho hum,
    “Doc” [You know who ;-)]

  7. fxtrader says:

    sometimes i wonder weather i am in a wrong profession. should i be a day fx trader or become a long term investor. you surely confuse a hell lot with my mind. while I have a day job, but i wouldn’t put my money into it!

  8. BhattRajendra says:

    Hey “DOC”

    pretty long comment. I did not understand it. are you trying to say something? what was the point?

  9. "Doc" says:

    Hello BhattRajendra,
    Yes it is long. But perhaps you could read again. It does makes several points. 🙂


  10. Santosh says:

    Good article.

    I see a sprinkling of comments that talk about brands, etc. when picking stocks.

    In my experience, buying stock is akin to buying the business… even thought it’s part ownership.

    What to look for in a business?

    Buffett calls it economic moat — companies with durable competitive advantage that are able to keep their competitors at bay year after year.

    Of course, you should be looking to buy these companies at good margins of safety for a decent ROI.

    • TIP Guy says:

      Hello Santosh,

      I would have liked to see mapping Indian companies (or present opportunities) to five points you mentioned. What’s the point of repeating what Buffett does?

      Easier said than done. Questions is not about knowing what is economic moat; it is about identifying and taking benefit of it. Practicing this art is very difficult. Isn’t it?

      Best Wishes,

  11. Anonymous says:

    Great explanation. I haven’t read this persepctive for long term investing from so called pseudo value investor. In the end all it boils down to is buy low, sell cheap. nobody talks about business. you have new fan in me.

    looking forward to reading more of such awesome articles.

  12. Investing means growing with the businesses you invest in… I totally agree with this point…

    Tip guy let me mention here… I came by your blog for the first time n I have book marked it 🙂

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