The Perception Of Time Affects Your Investment Strategy

When you ask people what they already have in their life and would like some more of it, most of them will say more time. Time to travel to different parts of the world, see your loved ones more often, to finish your passion project, and the list goes on and on.

We learn from a young age that time is precious, and we should cherish it. That is one of the reasons we like to plan because we don’t want to waste time. We can’t control time, but luckily, we can affect the time horizon of our investments.

Medium-term investing Investing is often seen as binary; you either invest for the short term and/or long term. Medium-term investing is less talked about. However, as an investor it is a common strategy out of necessity. Prudential sees medium-term as investment with a timespan of three to 5 years. You can use the following as a rule of thumb; Your investment goal is further away than an investment for the next two years, but also not in the distant future such as retirement. Examples of medium-term investments could be paying for your house, your children’s education, or something else. Below, I give you an example.

You invest in several companies with the strategy to hold them for 5 years. In the meantime, you keep an eye on your investments to know if the reasons you chose them are still valid. Afterward, you make a balance on how your investments went. Two of your investments are highly profitable and the companies are growing. Therefore, they become longer-term investments. The other investments didn’t go as well and change from long-term investment to medium-term because you’re cutting your ties and losses.

With a medium-term investment strategy, you always have the possibility to hold because of your belief in the companies

Being flexible could prevent the sunk cost fallacy In sports, it is important to change your tactics to succeed. The manager or player who can change their strategy because the game needs something else is often singled out for praise when it pays off. It is often said that the species who are able to adapt; survive. I believe as an investor it’s important to adapt to circumstances. Making flexibility part of your investment strategy before investing could help you suffer from the sunk cost fallacy.

Whenever the reason you decided to invest in a company changes, that could be a sign to sell. The following reasons could be a way to see this;

• Unpredictable earnings: This is often a sign of changes in the addressable sector. I always try to look if a company often beats its earnings estimate and has rising earnings. A company that often fails its estimates and comes back on its future guidelines is more likely to be perceived as unreliable and experience difficulties moving forward.
• Inconsistency of dividend: This would be a result of the first bullet point. A company is more likely to be seen as financially unstable when their dividend changes frequently.
• Not making improvements: In the past, growth companies didn’t give their shareholders dividends because their expenses were close to or exceeded their earnings. In today’s market, it is different because some companies prefer to reinvest to maintain or achieve a competitive advantage instead of paying dividends. It is with the frame of mind that investors will be rewarded through stock price appreciation, which leads to a greater return of investment. When this doesn’t happen either, a company is more likely to lose (a part) of their market share. As a result, investors will grow unsatisfied and sell their shares, which could lead to worsening market sentiment.

Takeaway I believe holding or cutting your position is a personal decision to make because everybody has his/her reasons to invest. A long-term investment can become a short- or medium-term investment because of circumstances. Future developments could affect your investment strategy. Afterward, you control how you react to changes. A short-term investment can become medium or a long-term one depending on the circumstances of a company and vice versa. Therefore, don’t let the perception of time make you fixated and tell you otherwise. Being flexible and having an eye on the market could prevent you from making your initial investment strategy a master of your decisions.

Thank you for reading and I wish you a nice day.