Success in both short and long term investing often has to do with developing a profitable investment timeline. Investment opportunities come and go. Successful investors routinely carry out fundamental analysis of the stocks, commodities, real estate, and other assets in which they invest. Unfortunately, fundamentals can change quickly in today’s economy. In today’s chaotic markets the smart investor also learns to do technical analysis of market sentiment. Long term, buy and hold, investing looks for long term profitability. This is often not present in a chaotic market. Thus an investor needs to look for a profitable investment timeline each time that he invests. When a publication such as the Wall Street Journal, Forbes, or Barron’s runs an article about a promising stock there is often a positive market sentiment that drives the price of the stock up. If the publication’s analysis is correct the fundamentals of the stock may support the higher price. On the other hand the stock price may rise above what fundamentals support and the price may ricochet back. A long term investor looking for a profitable investment timeline needs to take market sentiment into account when deciding at what price to buy and what price to sell a promising stock. He may choose to hold the stock for years but then he needs to consider the rate of return on his investment.
Businessmen expect to see a strong rate of return on their investments in research, development, marketing, production, and all other facets of their business. Investors should do the same. It should not be a guessing game to invest in stocks. Prices of dividend stocks, for example, tend to follow current and projected interest rates. Long term investors expect to make a return on investment reliably above the rate of inflation. This approach works best with stable stocks, typically large cap stocks. A profitable investment timeline with the likes of Proctor and Gamble can be decades. When investing in small cap growth stocks an investor is commonly looking for a higher rate of return than when investing in stalwarts such as P&G. Without a quarterly dividend check an investor needs to see stock price appreciation in order to stay with a stock. A growth stock may return a hundred fold on initial investment. But, if that takes a decade then the rate of return is substantially less. When investing in such a stock a profitable investment timeline will see early and continuing stock price appreciation.
Many long term investors are good a picking stocks but less skilled at deciding when to sell stocks. A stock with a good margin of safety and intrinsic stock value is a good long term stock pick. However, some stocks grow in fits and spurts. When a stock has had a good run and, perhaps, tripled its stock price, is it time to sit on the stock and collect dividends or sell to take profits and find the next stock. In the end this comes down to calculating the long term return on investment of any individual stock or of an entire portfolio. Whether you are investing in Microsoft patents or investing in Euro Zone Stocks, the most profitable investment timeline for one stock may be years and for another it may be a week.