Why are passive income investors only holding stocks for 3.6 years?

Are we all getting less patient? With little rectangular screens sucking up our attention like vampires, I wouldn’t be surprised to learn that attention spans are becoming shorter. But even I’m shocked to discover that our declining forbearance even extends to the world of investing and passive income. 

Warren Buffett said he liked to hold stocks “forever”. And the Foolish view we have on this website is about aiming for 10 years or more. 

But a recent survey found that the average holding period was just seven years in 2016. And it had declined to only 3.6 years by 2023. These days, the average stock isn’t held long enough for the next Olympics to roll around.

They say patience is a virtue. Well, the modern stock market investor doesn’t seem to agree.

Not very long

When we buy a stock, we generally want to have an investment case. In simple terms, an investment case is the reasoning behind why the stock will achieve what we want from it. Whether we’re buying for years of dividends or to beat the market, doing the research and finding compelling justification to make the purchase tends to yield better results. 

A fly in the ointment is that even the best investment cases don’t work instantly. Warren Buffett banged on constantly about how irrational the stock market was in the short term but how accurately the market would represent a stock’s true value in the long term. 

Investment cases need time to work their magic, and three or four years is simply not long enough. Such short holding periods are more the realm of speculators (or gamblers), which is perhaps on the increase.

Holding on

Here’s an example investment case using a stock from my own portfolio, Games Workshop (LSE GAW). I view the Nottingham-based tabletop game seller as one to consider because of its beloved fantasy world excelling at a time when other fantasy worlds are imploding (cough cough, Star Wars). 

A stake bought in Games Workshop in 2012, even with a rock-solid investment case, would have yielded no share price gains until 2016 (those four years put the holding time above average these days, remember). Sell after four years? Close to zero return.

The alternative decision however of holding the shares would have reaped bountiful rewards. They flew up 30 times in value between 2016 and 2025. I believe my own investment case remains intact to this day, evidenced by regular profit beats along with forecast earnings and sales growth in the years to come too.

That’s not to say I’ll hold the shares forever. Threats like rising supply costs and wages are tricky to manage for a company that manufactures everything in Britain so I may sell at some point.

But the overall lesson is that the modern trend of buying and selling stocks at the drop of a hat isn’t smart investing. I hope to hang on to my Games Workshop shares for closer to 3.6 decades, not 3.6 years!

The post Why are passive income investors only holding stocks for 3.6 years? appeared first on The Motley Fool UK.

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John Fieldsend has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Games Workshop Group Plc. 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.

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