Generally speaking, I've read in various Warren Buffett related books that when you buy a stock, you should pretend you will not be able to sell it for 10 to 20 years.
That's a long time!
Assume you buy shares in Google today, and the stock market closes and will not re-open until the year 2026. Would you be confident that Google, as a company, would still be in business?
I'm not sure! Microsoft sure seems intent on crushing them.
Therein lies the wisdom of looking at stocks with a long term perspective. In theory and practice, it keeps you from buying shares of a company whose fortunes might be at best fleeting.
Does it work all the time? No.
Someone might have easily bought shares of Enron, legitimately believing that a company as large and relatively diversified (and successful) as they were would stand the test of time. Today, the company doesn't even exist, and its top executives are on trial.
In Warren Buffett time, stocks will usually either go up, or vanish. That is, if you hand on to a stock long enough, it will either still be in business, or be out of business. Given that the general trajectory of stocks is upward, if the stock you buy is still in business, there is a good chance that its value will have gone up.
So the next time you buy a stock, just imagine... what if I'd have to hang on to the stock for ten to twenty years.
To learn more about Warren Buffett, visit: The Warren Buffett Center
Source: www.articlealley.com
