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The Decline of Long-Term Investing

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Decline of Long-term Investing

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The Briefing

  • The average holding period of shares on the New York Stock Exchange (NYSE) is now <1 year
  • Technological advancement is one of the biggest drivers of this change

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.

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.

YearNYSE Average Daily Trading Volume* (number of shares)
18861M
1982100M
1987500M
20201,000M

*10 day moving average as of Dec. 15, 2020. Source: Nasdaq

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.

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.

Where does this data come from?

Source: NYSE, Refinitiv (Accessed via Reuters)

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Economy

Charted: Public Trust in the Federal Reserve

Public trust in the Federal Reserve chair has hit its lowest point in 20 years. Get the details in this infographic.

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The Briefing

  • Gallup conducts an annual poll to gauge the U.S. public’s trust in the Federal Reserve
  • After rising during the COVID-19 pandemic, public trust has fallen to a 20-year low

 

Charted: Public Trust in the Federal Reserve

Each year, Gallup conducts a survey of American adults on various economic topics, including the country’s central bank, the Federal Reserve.

More specifically, respondents are asked how much confidence they have in the current Fed chairman to do or recommend the right thing for the U.S. economy. We’ve visualized these results from 2001 to 2023 to see how confidence levels have changed over time.

Methodology and Results

The data used in this infographic is also listed in the table below. Percentages reflect the share of respondents that have either a “great deal” or “fair amount” of confidence.

YearFed chair% Great deal or Fair amount
2023Jerome Powell36%
2022Jerome Powell43%
2021Jerome Powell55%
2020Jerome Powell58%
2019Jerome Powell50%
2018Jerome Powell45%
2017Janet Yellen45%
2016Janet Yellen38%
2015Janet Yellen42%
2014Janet Yellen37%
2013Ben Bernanke42%
2012Ben Bernanke39%
2011Ben Bernanke41%
2010Ben Bernanke44%
2009Ben Bernanke49%
2008Ben Bernanke47%
2007Ben Bernanke50%
2006Ben Bernanke41%
2005Alan Greenspan56%
2004Alan Greenspan61%
2003Alan Greenspan65%
2002Alan Greenspan69%
2001Alan Greenspan74%

Data for 2023 collected April 3-25, with this statement put to respondents: “Please tell me how much confidence you have [in the Fed chair] to recommend the right thing for the economy.”

We can see that trust in the Federal Reserve has fluctuated significantly in recent years.

For example, under Alan Greenspan, trust was initially high due to the relative stability of the economy. The burst of the dotcom bubble—which some attribute to Greenspan’s easy credit policies—resulted in a sharp decline.

On the flip side, public confidence spiked during the COVID-19 pandemic. This was likely due to Jerome Powell’s decisive actions to provide support to the U.S. economy throughout the crisis.

Measures implemented by the Fed include bringing interest rates to near zero, quantitative easing (buying government bonds with newly-printed money), and emergency lending programs to businesses.

Confidence Now on the Decline

After peaking at 58%, those with a “great deal” or “fair amount” of trust in the Fed chair have tumbled to 36%, the lowest number in 20 years.

This is likely due to Powell’s hard stance on fighting post-pandemic inflation, which has involved raising interest rates at an incredible speed. While these rate hikes may be necessary, they also have many adverse effects:

  • Negative impact on the stock market
  • Increases the burden for those with variable-rate debts
  • Makes mortgages and home buying less affordable

Higher rates have also prompted many U.S. tech companies to shrink their workforces, and have been a factor in the regional banking crisis, including the collapse of Silicon Valley Bank.

Where does this data come from?

Source: Gallup (2023)

Data Notes: Results are based on telephone interviews conducted April 3-25, 2023, with a random sample of –1,013—adults, ages 18+, living in all 50 U.S. states and the District of Columbia. For results based on this sample of national adults, the margin of sampling error is ±4 percentage points at the 95% confidence level. See source for details.

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