Watching paint dry
20 June 2023
Wall Street Journal reporter Jason Zweig recently reprinted a series of articles in which he described the 7 virtues of great investors (found here). Each of them could be the subject of a blog post. The one we're focusing on today is Patience. Or rather, the lack of it.
Between the 1970s and today, the average holding time for a US stock has fallen from 5 years to 10 months. And we're talking about the average.
Take Tesla: around 4% of its capitalization is traded every day. In other, over-simplifying terms, this means that 4% of shareholders leave every day, replaced by 4% of new shareholders. After two days, it's 8% and so on. After 25 days, all the original shareholders have been replaced (in reality, this is not true: some shares have not been sold - those of Elon Musk, for example - and others have been exchanged several times).
There are more radical examples. Take Upstart, an intermediary company for consumer loans. Far from being an obscure microcap, it weighs in at $3 billion. Since the beginning of May, 14% of its shares have been traded every day: at this rate, the list of shareholders changes completely in 7 days. This is not an isolated example. You'll find the same thing, for example, at Carvana, specialized in buying/selling used cars: over 4 billion in capitalization, in the red since its IPO in 2017 (1.5 billion in losses by 2022), and a mountain of debt. 17% of its shares are traded every day. For both Upstart and Carvana, the share price has tripled since the beginning of May. There's been a whiff of 2021 in the air for some time now.
In 2023, as 50 years ago, it's vital to think like an owner and to see ourselves for what we are: business owners with know-how, employees, customers... not a few pixels on a screen. Obviously, this means reconciling investment time with company time: our job is more like "watching paint dry", as economist Paul Samuelson (Nobel Prize winner in 1970) put it, than playing musical chairs.
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