Everybody is hungry for short-term profit. Very few are patient enough for long-term investment.
But I make long-term investment look like short-term one on my investment journey.
But how?
Very simple if you believe me!
We love short-term investment as we expect it to give back our invested capital along with some handsome profit in a short time which we can reinvest immediately in other short-term bets, thus setting in a virtuous cycle with ease.
But we ignore the fact that in the short term, anything may happen in the market. And if that happens to be adverse we may lose our money to a certain extent or if we don’t book loss, our investment remains stuck in the stock for an unpredictable length of time.
You may ask if nothing can happen in the long term.
May happen. However, because we thoroughly research and invest in stocks with strong fundamentals for the long term, there’s a high likelihood that these investments will appreciate significantly over time.
But short terms are vulnerable to adverse news of various kinds—some economy-specific, some sector-specific, and some other specific to the company.
Thus short-term trading is less likely to fetch you a handsome return over time. Your investment would bring you a 5% to 7% return in 2 months on average which may look like 30%-42% annually.
But it’s very unlikely that you will be able to buy another set of stock as soon as you book that profit. It may take you some 4-5 days to find another trade. That way you may execute a maximum of 5 trades with that capital over a period of 1 year.
Moreover, since you are a small investor facing many constraints and pitfalls, not more than 3 out of those 5 trades are likely to be successful. Thus, you are not likely to make more than a 25% profit in a year with short-term trading.
But long-term is a different story altogether.
First of all, you don’t hurry. You find a very good stock fundamentally. Normally it is not in its best of health when you choose it to buy. It is very likely a turnaround story in the offing.
So, you are not in a hurry to capture it. You don’t look into the chart pattern. You don’t calculate stop loss.
Thus you buy it in a relaxed manner and forget it for a few months.
Only after a few months, you track its financial results, its short-term capex plan etc. Usually, the stock starts showing reflection of your anticipated growth after a few months—say, 8 months to 12 months.
After some more months the capex, the diversification or consolidation of activities, new client acquisition etc. start raising their beautiful heads in robust revenue growth and some profit growth.
Large investors start accumulating your stock. And you smile.
As you may have read my old article on Refex Industries Ltd. I was on a handsome profit of 137% on 2nd July 2023 in 6 months. I did not sell it. And now I am on 925% profit in 660 total number of days on it and still not selling.
Could I have made that profit with short-term trading? I might have executed 12-16 trades in this period, but the profit would not have been more than 70% on exceptional accurate short-term trading.
That is why long-term is better than short-term. With short-term trading, I would have needed more than 10 years to earn 925% profit.