How long is long-term investing? 

If you ask a stock market trader, he may tell you that the long term is till the end of the day.

If you ask a technical analyst, he might tell you that the long term is around one month.

If you ask your tax planner, he will tell you that the long term is anywhere between 1 to 3 years depending on what you are invested in.

Markets participants talk about how equities outperform other asset classes over the long term. But everyone’s time horizon and definition of long term is different.

In 2017, Ambit Capital released a report titled “The Free Lunch in Indian Equities” that tried to analyze how long you need to stay invested in Indian equities to have a higher chance of earning positive returns.

To answer this question, the Ambit report looked at the distribution of returns of the Nifty 50, a stock market index, over periods of 1, 5, 10 and 15-year horizons.

What it found was that returns in the one year and five-year period have a higher chance of making low or negative returns. But, as the time horizon became longer, to 10 and 15 years, the odds started moving in favor of the patient investor; the median returns also increased whilst the risk went down.

When we think about our own definition of long term, we need to keep in mind that generally our investments need to last us through our lifetime and possibly even longer. We don’t want to run out of money and be dependent on others when we are older. 

Keeping this in perspective helps bring clarity to the goal we are striving for, that investing should be a marathon and not a sprint. It may be appropriate to have some free lunch to give us the energy to finish the race.