Fool.com: "Long Term" (Fribble) September 14, 1998

Monday, September 14, 1998

Whenever the DJIA "corrects" 100-plus points, a spokesperson is produced who is quoted as saying, "The small investor should stay fully invested for the long term." This is excellent advice supported by past performance. But what exactly is "long term?"

Some thoughts about this issue:

The IRS considers a stock sold after 12 months ownership as being subject to "long term" capital gains.

We are willing to take out a 30 year mortgage to buy a home, but very few live in one house for that length of time.

We elect a President for a term of four years.

We elect a U.S. Senator for six years.

We elect our Congressmen for two years.

A Pope is elected for life (different rules in Rome). The Bible itself has a strong preference for seven years.

The World Cup and the Olympics are held every four years, but the Kentucky Derby is for three-year-old thoroughbreds only.

The World Series and Super Bowl are hyped every year.

There is no set time for the "long term," but I think we are partial to four years. High school is four years, followed by a four years of college. Therefore, anyone with children has good reason to plan for that Graduation Day four years away.

Similarly, anyone who pays taxes knows that the Presidential term of 4 years makes the folks in Washington, D.C., kinder and gentler every four years. "Yes, I voted to cut your taxes this year."

The media likes decades -- the nineties, the eighties, etc. But what is OK for speculating about generational themes may not be good for investing. Technology moves too fast to wait that length of time.

Of course, if finding your name in the Forbes 400 Richest is a possibility, you can afford to relax and leave these investment decisions to the next generation or the grandchildren. However, most readers here are assumed to be less wealthy and anxious for their own well-being.

Understand that I am not suggesting that you glance at the Wall Street Journal once every four years and make intelligent investment decisions. Read it cover to cover every day if you want. But, if you are going to invest for the "long term," perhaps you should avoid changing more than a quarter of your portfolio every year. I wish that the managers of those mutual funds offered as investment vehicles in 401(k) plans stuck to that "long term" discipline!

Since it is "back-to-school" time, think of your stock purchases as if they were timid freshmen entering high school. Then imagine how four years from now they will be so much larger and more "grown up!" Consider your stock picks of 1998 as if they were the class of 2002!

[Hey Fools, why not pen a Fribble, yourself? We welcome submissions from readers. Just click here and read the "What's a Fribble?" item, pen a short masterpiece, and send it off to TMF [email protected].]