Print article

In the interest of time: why the long-term matters for investors

Seb Petit, Investment specialist director

Key Points

  • Fund managers’ average holding period of a US-listed stock is less than a year.
  • Being long-term means you can focus on what’s significant for a company’s long-term growth and dividend-paying prospects.
  • Culture has a profound influence on a company’s success over time, which is another reason why investors must take the long view.

The value of any investment can fall as well as rise and investors may not get back the amount invested.

The average investment time horizon varies widely across different market participants. Pensions savers, for example, have very long horizons – at the other end of the spectrum, day traders may be operating in milliseconds.

Historically, fund managers have sat in the middle, typically holding shares for a few years. But that timeframe has been going down for the past 40 years. The average holding period for a US-listed stock was less than two years in the 1990s and, with the exception of 2019, has been under one year since 2000. It is now legitimate to ask: when does ‘investing’ end and ‘trading’ start?

As equity income managers, our core task is to deliver long-term income and capital growth, so we firmly believe that ‘investment’ is best considered over long timeframes. Holding stocks for longer does not guarantee better returns, but we believe a long-term focus materially improves the odds of success.

A major advantage of focusing on the long term is that it allows us to see the wood from the trees. Companies’ quarterly results are subject to the vagaries of short-term, random events that are well beyond any management team’s control. Yet share prices typically overreact to this type of news flow. Why? It’s human nature. Recency bias is a typical characteristic of decision-making, placing more emphasis and importance on the most immediate information. Further, many fund managers feel pressure, whether through performance incentives or corporate structure, to stay close to benchmarks or peers. Taking a long-term view can lead to periods where performance deviates significantly, a career risk many managers are not willing, nor allowed by their employers, to take.

By focusing on short-term, volatile numbers, most market participants risk missing underlying developments, which may be more significant for a company’s long-term growth or dividend-paying prospects. This creates opportunities for more patient investors. For example, oil companies enjoyed a sharp rebound in profits last year as energy prices spiked following the invasion of Ukraine by Russia. Does it materially change the existential threat to their businesses as the world transitions to renewable energy? We don’t think so.

There is another human factor that matters for long-term success. Among the many reasons behind successful businesses, one is common to all: their culture. It can be intangible and hard to define but is invariably mentioned by the leaders of these companies. For the Swedish industrial company Atlas Copco, for example, it is a culture based on innovation, relentless attention to customers’ needs and empowering local managers. That culture has enabled the company’s successful expansion well beyond its original products, leading to many years of earnings and dividend growth.

The ultimate test of a strong culture is its ability to be maintained after the departure of a charismatic founder or leader. Apple is a good example: its strong culture of innovation and a drive to design sophisticated but easy-to-use devices were instrumental in its success. Most importantly, that culture was maintained after Steve Jobs’ departure, contributing to the company’s enduring success.  

We believe culture is a key success factor, and understanding it is crucial for investors. However, generating such insight takes time, and you are unlikely to spend it if your investment time horizon is one year. Over such a short period, a culture change will barely have any impact. Over a decade, however, it could have a profound influence on the success of a company.

Focusing on the long term is hard as it goes against the very human urge to be part of a crowd. Where most see the risks, we seek the potential reward.

Actual Investors
imagine ‘what if?’. 

Not ‘what is’.

Risk factors        

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in May 2023 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

Potential for Profit and Loss

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.

Important information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial intermediaries

This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.

Europe

Baillie Gifford Investment Management (Europe) Limited provides investment management and advisory services to European (excluding UK) clients. It was incorporated in Ireland in May 2018. Baillie Gifford Investment Management (Europe) Limited is authorised by the Central Bank of Ireland as an AIFM under the AIFM Regulations and as a UCITS management company under the UCITS Regulation. Baillie Gifford Investment Management (Europe) Limited is also authorised in accordance with Regulation 7 of the AIFM Regulations, to provide management of portfolios of investments, including Individual Portfolio Management (‘IPM’) and Non-Core Services. Baillie Gifford Investment Management (Europe) Limited has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford Worldwide Funds plc. Through passporting it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Germany. Similarly, it has established Baillie Gifford Investment Management (Europe) Limited (Amsterdam Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in The Netherlands. Baillie Gifford Investment Management (Europe) Limited also has a representative office in Zurich, Switzerland pursuant to Art. 58 of the Federal Act on Financial Institutions (“FinIA”). The representative office is authorised by the Swiss Financial Market Supervisory Authority (FINMA). The representative office does not constitute a branch and therefore does not have authority to commit Baillie Gifford Investment Management (Europe) Limited. Baillie Gifford Investment Management (Europe) Limited is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited and Baillie Gifford & Co are authorised and regulated in the UK by the Financial Conduct Authority.

China

Baillie Gifford Investment Management (Shanghai) Limited
柏基投资管理(上海)有限公司(‘BGIMS’) is wholly owned by Baillie Gifford Overseas Limited and may provide investment research to the Baillie Gifford Group pursuant to applicable laws. BGIMS is incorporated in Shanghai in the People’s Republic of China (‘PRC’) as a wholly foreign-owned limited liability company with a unified social credit code of 91310000MA1FL6KQ30. BGIMS is a registered Private Fund Manager with the Asset Management Association of China (‘AMAC’) and manages private security investment fund in the PRC, with a registration code of P1071226.

Baillie Gifford Overseas Investment Fund Management (Shanghai) Limited
柏基海外投资基金管理(上海)有限公司(‘BGQS’) is a wholly owned subsidiary of BGIMS incorporated in Shanghai as a limited liability company with its unified social credit code of 91310000MA1FL7JFXQ. BGQS is a registered Private Fund Manager with AMAC with a registration code of P1071708. BGQS has been approved by Shanghai Municipal Financial Regulatory Bureau for the Qualified Domestic Limited Partners (QDLP) Pilot Program, under which it may raise funds from PRC investors for making overseas investments.

Hong Kong

Baillie Gifford Asia (Hong Kong) Limited
柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 and a Type 2 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited
柏基亞洲(香港)有限公司 can be contacted at Suites 2713-2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.

South Korea

Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.

Japan

Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.

Australia

Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a “wholesale client” within the meaning of section 761G of the Corporations Act 2001 (Cth) (“Corporations Act”).  Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client.  In no circumstances may this material be made available to a “retail client” within the meaning of section 761G of the Corporations Act.

This material contains general information only.  It does not take into account any person’s objectives, financial situation or needs.

South Africa

Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

North America

Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.

The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission ('OSC'). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.

Israel

Baillie Gifford Overseas Limited is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.

58707 10020833

Author

Seb Petit

Investment specialist director

Seb joined Baillie Gifford in 2020 as a Client Director attached to our Global Income Growth strategy. He has worked in the asset management industry for 18 years, first as an equity research analyst for Barclays and Fidelity International, then as a product specialist for Fidelity and Artemis Fund Managers. Seb graduated from EDHEC (France) with a BSc in Finance and from Columbia Business School (USA) with an MBA. He is a CFA Charterholder.

Back to top