Chapter Thirteen
The Perils of ADHD Investing
Never Underestimate the Value of Doing Nothing
WE HAVE LEARNED IN THIS BOOK that one of the barriers that prevents a lot of investors from acting against bubbles is myopia, an overt focus on the short term. However, this tendency to think short-term isn’t unique to bubbles. We see it all the time. Investors today appear to have chronic attention deficit hyperactivity disorder (ADHD) when it comes to their portfolio.
Exhibit 13.1 illustrates the problem. It shows the average holding period for a stock on the New York Stock Exchange (NYSE). Today the average holding period is around six months! In the 1950s and 1960s investors used to hold stocks for seven or eight years—interestingly, this was before the rise of the institutional investment as we know it today. Of course, if you hold a stock for just six months, you don’t care at all about the long term, you simply care about the next couple of quarterly earnings figures.
EXHIBIT 13.1 The Average Holding Period for a Stock on the NYSE (years)
Source: GMO.
This focus on the short term is hard to reconcile with any fundamental view of investing. We can examine the drivers of equity returns to see what we need to understand in order to invest. At a one -year time horizon, the vast majority of your total return comes from changes in valuation—which are effectively random fluctuations ...

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