- The average holding period of shares on the New York Stock Exchange (NYSE) has significantly fallen.
- The visual data below explores the biggest drivers of this change, including factors such as technological advancement.
The decline of long-term investing
“Our favorite holding period is forever.”
Those are words from famed investor Warren Buffett, an advocate of the buy and hold approach to investing. Buy and hold is a long-term strategy in which shares are gradually accumulated over time, regardless of short-term performance.
And while Buffett is undoubtedly a successful investor, data from the NYSE suggests that few are actually following his advice. As of June 2020, the average holding period of shares was just 5.5 months. That’s a massive decrease from the late 1950s peak of 8 years.
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What’s driving this change?
The decline in holding periods appears to have been caused by a number of factors, with the most prominent one being technological advancement.
For example, in 1966, the NYSE switched to a fully automated trading system. This greatly increased the number of trades that could be processed each day and lowered the cost of transactions.
Automated exchanges have led to the introduction of high-frequency trading (HFT), which uses computer algorithms to analyze markets and execute trades within seconds. HFT represents 50% of trading volume in U.S. equity markets, making it a significant contributor to the decline in holding periods.
Technology has enabled investors to become more active as well. Thanks to the internet and smartphones, new information is widely distributed and easy to access. With online trading platforms, investors also have the ability to act on this information immediately.
Social media is also playing a role. The recent r/wallstreetbets saga is an example of how the stock market can become sensational and fad-driven. After all, long-term investing has much less to offer in terms of excitement.
What is the World Economic Forum doing to measure the value in media?
The Fourth Industrial Revolution has changed the way content is produced, distributed and consumed for media companies, brands and individuals.
The media industry today is characterized by so-called "destination" and "ecosystem" media. The former are content destinations for consumers, while the latter use content as a strategic asset in a bigger portfolio of products and services. They offer relatively low-price media services as drivers to monetize other parts of their business, such as e-commerce, transactions, live experiences, affiliate sales or branded media.
Media production and distribution creates economic value along its sectoral production chains. It also does so through these ecosystems, increasingly owned and managed by "supercompetitors". How should society measure and value their impact?
This project, Value in Media, has spent a year looking at how individual consumers value destination media. It has analyzed business model strategies in the media industry, studied the extent to which these strategies align with people's preferences around payment and data management, and discussed areas for the industry to focus on in improving its value proposition to society.
Building on this research, the project is now in a second phase that attempts to measure the value that ecosystem media generate in society. It will look specifically at:
- A cost-benefit analysis of ecosystem economics in media
- Developing a framework for new indicators of value such as quality, innovation and consumer welfare
- Identifying metrics that better represent the value of media to society, including its contribution to related activities such as retail, e-commerce and consumer industries
Corporate longevity in decline
Finally, companies themselves are also exhibiting shorter lifespans. This results in greater index turnover (companies being added or removed from stock indexes), and is likely a contributor to the decline in holding periods.
In 1970, companies that were included in the S&P 500 had an average tenure of 35 years. By 2018, average tenure was down to 20 years, and by 2030, it’s expected to fall below 15 years.
Altogether, these trends may be creating a greater incentive to pursue short-term results.