How I’d invest for 10 years using the Warren Buffett method

Fans of Warren Buffett taking his photo

Billionaire investor Warren Buffett, talking about his investing style at Berkshire Hathaway, famously once said: “Our favorite holding period is forever.” He’s also suggested that if we wouldn’t be happy to hold a stock for 10 years, we shouldn’t hold it for even 10 minutes.

But in December 2021, Visual Capitalist reported a big fall in the average holding period for stocks on the New York Stock Exchange. The investigation discovered that the average holding period peaked at eight years back in the 1950s. But by 2020, investors were holding on to their shares for an average period of less than six months.

There are plenty of reasons why. Technology has made trading easier and cheaper than ever before. And the free flow of news, rumour, gossip, and even fraudulent stock promotion has led to people trading faster than ever before.

Attention span

Investors’ attention spans do seem to be getting shorter and shorter. And I reckon that’s bad news for their long-term returns.

There is, though, an argument that companies don’t last as long as they used to. I can see that growing as a trend, especially when it comes to the increasing number of small high-tech hopefuls that crop up with regularity.

But to me it’s a reason to simply avoid them. If I see a company and I can’t even guess whether it will be in 10 years, not a penny of my money is going anywhere near it. I might miss out on some quick profits. But I reckon I’ll avoid more risks and potential wipeouts.

10 years

Despite changes in technology and in markets, I still believe Buffett‘s 10-year rule is a good one. In fact, I think it might be more important now than it’s ever been. But it is often misunderstood.

If we have to hold our stocks for at least 10 years, what are we supposed to do we do if something goes wrong? I’ve often heard people ask that, when dismissing the idea of holding for 10 years as ideological and impractical.

But the answer is easy. If something goes wrong, sell. Warren Buffett does it all the time. His thing about holding a stock for at least 10 years does not mean regardless of what might happen.

Selling

No, here’s the way I see it. When I investigate a stock with a view to buying, I always ask myself whether it’s one I’d like to hold for a decade. I will only buy if I can answer with an enthusiastic yes. That does not mean I’m not then allowed to sell.

But what it does mean is that I’m a lot less likely to buy shares that I’ll want to sell.

So that’s my key take from the Warren Buffett method when it comes to holding periods. If I see a stock that I think I might want to buy for a couple of years, then sell if it comes good… I’ll turn away.

Holding for the long term reduces costs, it reduces stress, and I’m firmly convinced it reduces risk too.

The post How I’d invest for 10 years using the Warren Buffett method appeared first on The Motley Fool UK.

6 shares that we think could be the biggest winners of the stock market crash

The hotshot analysts at The Motley Fool UK’s flagship share-tipping service Share Advisor have just unveiled what they think could be the six best buys for investors right now.

And while timing isn’t everything, the average return of their previous stock picks shows that it could pay to get in early on their best ideas – particularly in this current climate!

What’s more, all six ‘Best Buys Now’ are available to access right now, in just a few clicks.

Learn more

setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()

More reading

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.