Most global equity funds in Canada own up to 100 large-size companies, and often more. If you managed this many companies at the same time, how likely is it you’d know each business very well?
When portfolio managers own too many stocks and churn their portfolios it’s next to impossible to follow them all. Add to this mix that the average holding periods for stocks have declined from 8 years in the 1950s to mere months today – for some investors it’s only seconds!
When portfolio managers are juggling too many stocks, they generally end up without a solid grasp of how the companies’ products are performing, how the stocks’ competitors are succeeding and where the industry trends are heading. It’s also a challenge to build up any long-term wealth if you’re jumping around between your investments.
You wouldn’t start a new business every two or three months, so why would you sell a stock every two or three months?
Take the success of Microsoft and Tim Hortons, two very different companies with one commonality: an unrelenting dedication to nurturing one great business, rather than several so-so businesses. Both companies didn’t become pioneers of their industries over just a few months – and undervalued stocks won’t reach their best rate of return in the same short timeframe.
I’m not trying to build the next software platform or coffee empire, but I use their business strategies to demonstrate how a long-term investment plan is as important as a long-term business plan.
With Trimark Global Endeavour Fund, we’ll generally buy five good businesses per year. Fewer, but better, businesses that we can nurture and over time their true value is revealed.
What’s your perspective on long-term investing? Feel free to leave your comments/questions below or via email.
Note: The companies mentioned in the article were selected for illustrative purposes only and are not intended to convey specific investment advice.
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