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A few years ago, LPL Financial produced a report that showed the average holding period of an NYSE-listed stock. This should come as no surprise, but the average holding period has trended down through the decades.
LPL’s research showed the average holding period at just over eight years in 1960. A decade later the average holding period had been reduced to just over five years. By 2010, the average holding period had been emaciated to six months.
A good deal of this time compression is attributable to the rise of institutional trading, which includes frenetic high-frequency trading. That said, if I were to hazard a guess, I’d guess that most individual investor holding periods have trended with LPL’s research. (A meaningful individual average is difficult to conjure, as the data required to calculate the average are difficult to gather.)
This inability to stay the course is problematic. As Warren Buffett trenchantly observed, “Successful investing takes time, discipline and patience. … You can’t produce a baby in one month by getting nine women pregnant.”
I concur with Buffett, though to his observation I’d add that successful investing also takes the right investments. For me, and for many individual investors, income-generating investments are the right investments. I refer to investments that generate dividends, distributions, royalties, interest and rent.
I focus on income because I prefer an even keel. Most investors focus on price, and when price is the focus, you can be sure hyperactivity follows. Price fuels emotions because price is viewed as the imprimatur of success or failure: Market price rises above purchase price, you succeed; market price falls below purchase price, you fail.
If income continues to flow in as expected, price will take care of itself, if given time. I’ve seen this phenomenon occur numerously at our sister publication High Yield Wealth. Gladstone Commercial Corp. (NASDAQ: GOOD) serves as an insightful example.
Gladstone, a small-cap REIT, has been a High Yield Wealth recommendation for nearly four years. Over this recommendation period, Gladstone shares have traded as high as $21 and as low as $12. When they traded at $21, I was a genius. When they traded at $12, I was an idiot. Today, Gladstone shares trade at $16.50. (I’m unsure what that price says about me.)
I don’t really care, though. Gladstone continues to generate high-yield income, which was the rationale behind my initial recommendation and supports my recommendation to this day. Since my initial recommendation, Gladstone has paid over $5 per share in dividends – nearly a third of my initial recommendation price.
With dividend growers, the wealth effect of investment income and patience is frequently more pronounced. McDonald’s (NYSE: MCD) has been a High Yield Wealth recommendation for nearly 5 ½ years. Each year, McDonald’s annual income stream (the dividend) rises, and so does the share price. McDonald’s has produced a holding-period total return of 90%.
But patience is again key. McDonald’s investors had to endure a two-year stretch where McDonald’s shares traded flat or down. Thanks to McDonald’s ability to keep the dividend rising, the share price eventually regained currency with investors. McDonald’s shares are up 25% in the past six months.
Practice patience, focus on income. Wealth creation will eventually follow, if you can give it the time it needs.
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