The one thing I’m so thankful for as an investor

But I’m an investor, and this is an investing website. So let me digress to something a little less important.

I am so thankful that buy-and-hold investing still works.

Imagine you bought shares of the S&P 500 10 years ago and forgot about it, spending the last decade traveling, doing hobbies, and hanging out with your family. You finally get around to checking your account balance this morning, and see your investment is up more than 102%.

You’re thrilled.

“Buy and hold works,” you tell yourself.

But then you look around and see all kinds of articles, books, and advice proclaiming the death of buy-and-hold investing.

“Buy and Hold Is Dead (Again)” is the title of one popular book.

“The only way to make money in the equity market is to be nimble, and that means adopting a strategy that is not buy and hold,” one article reads.

“Buy & hold is a relic of a bygone era when the economy was stable and consistent growth was the norm,” another analyst warns.

None of this makes sense to you. What are these people talking about?

Ah, then you get it.

All of these investors spent the last decade trying to be “nimble”, trading in and out of markets — and losing a fortune in the process. Now they’re bitter.

The only people who think buy and hold is dead are those frustrated with their inability to follow it.  

Buy and hold still works, and it’s going to continue to work for those who buy a diverse portfolio of good businesses at good prices and hold for the long run. Two wars, the worst recession in 80 years, a financial crisis, a housing bust, and government shutdowns weren’t enough to prevent patient investors from more than doubling their money over the last decade.

I’m so thankful for that.

You should be, too.

One thing I’ve found to be amazing over the last five years of ups and downs are the number of investors who had a bad month, or a bad quarter, or even a bad year and assumed it meant the market was broken, and that buy and hold was dead. In reality, it’s the other way around: The reason you can earn great long-term returns in the stock market is because we have a downturn like 2008 once in a while.That’s the cost of admittance. It’s normal.

The reason so many investors think buy and hold doesn’t work anymore is because we have a culture obsessed with short-term thinking. It’s endemic to our entire society, but nowhere is it more obvious than in investing.

One of my favorite investing stories is from BlackRock CEO Larry Fink. Fink was having lunch with the CEO of one of the largest pension funds in the world. “We’re investing for the next generation” the pension manager said. “So how do you measure your returns?” Fink asked. “Quarterly” the manager said.

That’s most people’s problem. We think we’re investing for the long run, but we measure success in the short run.

Once you get over this mental roadblock, the value of buy-and-hold investing becomes clear.

Now, this doesn’t mean you can buy the market at any time, at any price, and do well. The higher the valuation you buy stocks for, the lower your future returns will likely be, and the longer it might take for buy and hold to work its magic.

But it does work. I’ve dug through hundreds of research reports and sifted through piles of historic market data. I’ve found that the single biggest factor separating successful investors from losers is simply the amount of time they have been investing for.

Want proof? I took market data going back to the 1870s and calculated the maximum and minimum returns you could achieve by different holding periods. These are real total returns, meaning they’re adjusted for both dividends and inflation. Have a look:

If you’re investing for a year or two, you are flipping a coin. Stocks might go up or down, and you have no way of knowing which direction. But if you can hold for 10 years or (ideally) more, the odds turn overwhelmingly in your favor.

This doesn’t mean bad things won’t happen to markets. But time has a way of smoothing bad events out. Think of it this way: We have good historical market data going back to the middle of the 19thcentury. During that time:

• 1.3 million Americans died while fighting nine major wars.
• Four U.S. presidents were assassinated.
• 675,000 Americans died in a single year from a flu pandemic.
• 30 separate natural disasters killed at least 400 Americans each
• 33 recessions lasted a cumulative 48 years.
• The stock market fell more than 10% from a recent high at least 97 times.
• Stocks lost a third of their value at least 12 times.
• Annual inflation exceeded 7% in 20 separate years.

Yet as a group, stock investors have never experienced a 20-year period when they lost money, even after inflation.

Not once.

Even with stocks zooming to all-time highs this year, I’m still as confident as ever that buying good companies for the long haul is the way to go.

And I’m still buying stocks.

I love companies like Markel, an insurer with a solid history of wise management still trading for a reasonable valuation. If you’re interested in other great franchise businesses that our top analysts are looking to hold for the long run, I’d highly recommend checking out what my friend Ron Gross and his team at Motley Fool Million Dollar Portfolio are doing. You can click here for a few companies on Ron’s list.

One of my favorite investing quotes comes from a guy named Nick Murray. “Timing the market is a fool’s game” he says. “But time in the market is your greatest natural advantage.”

Keep that in mind as stocks hit new highs.

Morgan Housel
Motley Fool One Senior Analyst