Mad Men or Wise Men? Investors Today versus in the 1960s

Print Friendly, PDF & Email

How long does the average investor today hold a stock? If you guessed less than a year, then you are correct. The average holding period for a stock dipped below a year sometime after 2000 and has continued to drop.

Mad Men or Wise Men

In the 1940s and 1960s, investors held stocks on average seven years or more. So what is going on? Have today’s investors gone mad, or are they on to something good?

First, let’s think about what a share of stock actually is. Buying a share of stock means that you, the stockholder, are now a part owner of that business.

Since the 1940s, the business world certainly seems to be moving faster, so maybe a drop in the average holding period makes sense. With the internet, social media, clean energy, eco-friendly products, micro blogging, and Wi-Fi everywhere, things must move at lightning speed, right?

After researching this idea, it doesn’t seem that way. Despite the daily cacophony of life, the nuts and bolts of managing and running a business haven’t changed all that much. Designing, producing, and marketing new products still take years for most businesses. Here is how long it takes various businesses to perform critical tasks:

  • To develop a new pharmaceutical drug: 12 years (Pfizer, Merck, GlaxoSmithKline, etc.)
  • To develop a new car: 12 months for a minor refresh and 4-5 years for a completely new design (Ford, General Motors, Honda, Toyota, etc.)
  • For a defense contractor to design and build a new fighter aircraft: about 10 years (Boeing, Lockheed Martin, Northrop Grumman, EADS, etc.)
  • For a major film studio to produce a movie: 1-2 years (4-6 years if you include preproduction work like story and script development) (Sony, Fox, Viacom, Vivendi, etc.)
  • For a video game company to develop a new major release: 1-2 years or more (Electronic Arts, ActivisionBlizzard, Take Two Interactive, etc.)
  • To design and build a new commercial airliner: About 8 years from design to first commercial flight (Boeing, Airbus)
  • For a computer hardware company to develop a new microprocessor: 2-4 years (Intel, AMD)
  • For a software company to develop a new operating system: about 2-4 years (Microsoft, Apple)
  • To build new housing development/town: 2-10+ years (Lennar, DR Horton, KB Homes, Toll Brothers, St. Joe, Tejon Ranch, etc.)
  • To build one home: 4-6 months
  • To build new power plant: 1 year (for small natural gas peaking unit) and up to 15+ years (for a new nuclear plant) (Exelon, Duke, AEP, GE, Hitachi, Fluor, KBR, etc.)
  • To design, build, and ship a new video game console (e.g., Xbox, PlayStation): 3-5 years (Sony, Microsoft, Nintendo)
  • Remodel of a large department store: 1-3 years (JCPenney, Macys, Kohls, etc.)
  • Explore, discover, test, and deliver oil from new oil field: 3–10 years (ExxonMobil, Chevron, etc.)
  • For a chemical company to research and bring to market a new compound (Kevlar, Twaron, NOMEX, etc.): 5–10 years (DuPont, Akzo-Nobel, Dow, etc.)
  • For a fast food restaurant to research, test, and place a new item on the menu: about 1 year (McDonalds, Burger King, Yum! Brands)

Despite everything you hear, the business world changes only at a pace measured in years. Sure, you’ll always have disruptive start-ups, but for most industries change takes place only over the course of years.

If you are buying a business, which is what stock represents, then shouldn’t you match your investment time horizons to the business’s operational time line? If it takes years for things to materialize in the business world, then the day to day, week to week, month to month, and even year to year fluctuations of the stock market aren’t that important. They just give the intelligent investor a chance to pick up shares of great companies at a discount or perhaps sell shares of a previously purchased company at a premium.

It seems like a world of opportunity is out there for investors like us with long-term horizons. We are alone. And it’s much easier to make money when there is hardly any competition for what you are doing.

Ben Strubel can be reached at Strubel Investment Management.