If tickers drive you crazy, with every price rise causing a sense of ecstasy, and every red quotation, heartburn, then value investing is not your cup of tea. Staying invested for long has other benefits too. Many short-term traders make more money for their brokers than they make for themselves. While the brokerage may look like a small figure to you, constant buying and selling can add up to a whopping sum. Add to this the cost of the many hours spent in keeping track of the live market quote, and it does not look like a worthwhile proposition.

You pay zero tax when you sell your investment after one year from the date of purchase. This is the greatest reward the Income Tax Department gives you for staying invested for long.

Now the million-dollar question, how long is the long term? You ask ten investors and you are likely to get ten different answers. Strangely, barring the day traders and pure speculators, most players in the market are likely to say that they are long-term investors, without even giving a thought to what time horizon they are talking about.

For many investors the long term is one year, the statutory minimum the Income Tax Act specifies for the purpose of calculating the tax on long-term capital gains.

This period was three years earlier, and this class of investors perhaps think that the Government also thought three years too long, and has decided to curtail the period to one year. For disciplined value investors, the long term is an entirely different concept.

It is time sufficient for the market to recognise the true value of a particular stock, and this may sometimes take many years and at times encompass a couple of major crashes and booms!

It is said that more money is made in being static rather than by being hyperactive in the market. Daily fluctuations should not bother a long-term investor. The average holding period of investors such as Warren Buffett has been 10-12 years. Remember, this is the average, some of the investments they would hold on to for 20-25 years or even more.

Focusing on the short-term aspects of a company including both business and price fluctuation is contradictory to the value investment philosophy, and Buffett rightly says: "Most of our large stock positions are going to be held for many years, and the scorecard on our investment decisions will be provided by business results over that period, not by prices on any given day."

It is like being wedded to your stock- for life. Unless there is a change in company's economics for worse, you would continue to hold the share for eternity.

It follows that when you are evaluating a company, you must give due weight to the quality of management as well.

Warren Buffett explained this factor by observing that you should choose the President of the company (that is, evaluate the quality of the management) the way you would choose your son-in-law.

If you have chosen your company properly, and the share grows at a rate substantially higher than the cost of money it would be wiser to stay invested in the company for a fairly long period of time.

A company which you bought in a depressed condition, and which keeps growing at a CAGR of 20 per cent is likely to outperform the market for as long as the company maintains the growth rate.

If the rate of growth is accelerating, you would do well to stay invested in that company for life, though not many companies would qualify through this filter perpetually.

Compound interest is one of the most powerful forces in the financial world, and if you stay invested for the long term, you are bound to see the magic of compounding at its fullest.

When John Maynard Keynes said, "In the long run we're all dead", he was certainly not referring to the stock market. He was referring to the counter-cyclical demand management policies that governments ought to be following in the short run. The bottomline is that since it is impossible to predict whether you are now at the top of a bull run, or at the beginning of a long period of depressed market, it always makes more sense to stay invested for a sufficiently long period of time.

Historically, the longer the period of investment in equity, the higher is the return and the lower the risk of losing your capital. If you are likely to need money within five years, stay away from the stock market.

Like the fabled tortoise that beat the hare in the race, the investor who stays on for the long term is more likely to achieve his goals than the investor who chases "hot tips" for quick profits in the stock market.

(The author is a practising chartered accountant based in Nagpur.)

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