“I am investing for the long term” has become very common phase.
One of my friends who invests in Crypto, his mindset is that initially he would put money for making quick gains, and claims that he is a trader, but if prices fall, he is in for the “long term”.
As @morganhousel covered it brilliantly in his article that the situation around you won’t be the same when you actually decide to go for “long term”.
Today it might be very easy for people to say that “I am investing for long term” because all the stocks or crypto have provided good returns so far.
When something would actually fall down by substantial amount and remain there for a long period of time then the situation would be very different.
There would be pessimism everywhere, news about things not working as they thought will be flashing your screen, people you worship (Elon Musk?) might back off like it happened with Bitcoin and Tesla, etc.
You would not be having same mindset what you are having today when you decided to hold for “long term”.
This also applied to index investing. People generally, including me, recommend people that just SIP in the index for 10-20 years. But when the things get dirty people will panic.
You need to understand why investors invest for the long term. I am sharing the reasons for stocks and not related to crypto as they are fundamentally different.
Performance needs time
It takes time for a company to first generate revenue by customer acquisition and then converting it their profit pool.
There is capital expenditure done in business whose fruits are enjoyed after the business becomes efficient in using it.
Building relations with customer takes time as you show a track record of consistent performance.
There are Freemium model where some products/services are provided for free and at a later stage due to customer forming a habit starts buying other related products.
Study about business model and you will realize that it requires a lot of time to build a good product/service and furthermore time to distribute it with constant advertising.
The trends of shifting of consumer behaviour are always long term.
It will never happen that as soon as something is discovered the very next day the world will shift to that product.
It would require a lot of expenditure to make people believe your product’s value proposition and that my friend requires time not some miracle (perhaps, a tweet).
Market too needs time
Another thing is that sometimes market too requires time.
The company you are invested in might remain unnoticed for years. So, one can’t quote that I am a trader and need money within 10 days when they invest with the mindset of a long-term investor.
Know what you are doing before you do it.
Don’t jump around being from a trader to an investor just because your trade failed.
If you are buying the underlying business based on the earnings, the stock will eventually follow. We just don’t know when.
If one can truly understand a business, then holding on to it for the long term works as you know how the situation is but buying an asset initially with a short term mindset then holding on to it stating you are a “long term” investor (just because the price went below your cost) is just a way you might be fooling with yourself.
As it is rightly said by Richard Feynman,
“The first principle is that you must not fool yourself and you are the easiest person to fool.”