Page 42 - BusinessWest December 22, 2021

The Death of Long-term Thinking
And Why Investors Should Consider Re-evaluating This Strategy
By Jeff Liguori
Humans are historically bad at long-term thinking. In the world of finance, that behavior has dramatically worsened
over the past 50 years.
Today, the average investor holds an indi-
vidual stock for less than six months; in the late 1990s, that period was approximately two years. Go back to the 1950s, and investors were holding individual stock for nearly eight years on average.
What has caused such a drastic shift in inves- tor behavior? First, access to markets has never been greater, which creates ample amounts of liquidity for trading. Second, ever-growing reams of information are disseminated at lightning speed, preying on our psyches. Finally, the cost to trade shares of a stock is negligible — in many cases, zero. Each of these trends is quite benefi- cial to the average investor. However, the com- bination of these factors promotes behavior that does not support a long-term view of investing.
For the sake of analysis, let’s look at the per- formance of Target Corp. (symbol: TGT). From July 1, 2013 through Nov. 30, 2021, the total return of Target’s stock (price appreciation and dividends) was 350%. During that same time- frame, the S&P 500 had a total return of 230%. However, shares of Target largely underper- formed the broader market in the five years fol-
lowing July 1, 2013, returning 29% vs. 86% for the S&P 500.
There was no lack of bad news in that five- year period, including a change in leadership with a new CEO and a failed plan to expand into Canada that cost the company more than $5 bil- lion. But a patient investor with
a long-term view, who believes
in owning solid businesses, has
been handsomely rewarded by
staying with Target.
A recent article in the Wall Street Journal highlighted a little-known mutual fund man- ager, Wilmot Kidd, who has had exceptional investment performance.
“Over the past 20 years,”
it notes, “Mr. Kidd’s Central
Securities Corp. ... has out-
performed Warren Buffett’s
Berkshire Hathaway Inc. Over the past 25, 30, 40, and even nearly 50 years under Mr. Kidd, Central Securities has resoundingly beaten the S&P 500. The keys to his success? Patience, concentration, and courage.
“If you had invested $10,000 in Central Secu- rities at the end of March 1974, when Mr. Kidd
officially took over,” the article continues, “you would have had nearly $6.4 million by the end of this October, according to the Center for Research in Security Prices. The same amount put into the stocks in the S&P 500 would have grown to $1.9 million.”
“Ever-growing reams of information are disseminated at lightning speed, preying on our psyches.”
Analysis on Kidd’s fund suggests an average holding period north of 10 years. But some of the companies in which Central Securities is invest- ed have been part of the fund for more than 30 years. And during
Kidd’s tenure, the
fund has underper-
Invest
Continued on page 56
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