The Long Arithmetic: Issue 17

The 20 largest asset managers in the world use the term "long-term investor" more than 7,000 times on their own websites. Somebody actually sat down and counted. The count comes from a 2022 report by the Sustainable Finance Observatory, which used to be called the 2° Investing Initiative.

More than 37,000 news articles use it too. It turns up in fund names, in firm names, and in the names of research companies whose job is to tell you what to think about the firms.

The term is everywhere. What it doesn't have is a definition.

 A term with no definition, and no one is policing it

The researchers interviewed 60 asset managers and asset owners between July and December of 2021. Almost 92% classified their own organization as a long-term investor. Then they asked what that actually means.

33% said a long-term investor holds for 10 years or more. 32% said 5 to 10 years. 27% said 3 to 5. And 8% said 1 to 3 years.

So, two firms can both call themselves long-term investors, sincerely, while one holds their investments for a decade and the other holds them only for a year. Both are telling the truth as they understand it. It’s just that the term simply isn't carrying any information.

Then comes the part I keep thinking about. Each person was also asked to name the minimum horizon that qualifies. Only 66% of them met the standard they had set themselves, minutes earlier, in the same conversation.

Only 52% reported a horizon of 5 years or more, while roughly 70% said 5 years is the floor.

The report's own conclusion is blunt. The term "operates effectively without regulation or control." It gets used in marketing to retail and institutional clients alike, "in such a way that the term has arguably lost its meaning."

That's a research group being relatively polite about their takeaway.

Patience is real, and nobody invented it to sell a fund. Time does work in a portfolio that cleverness can't. And the cost of jumping in and out does show up in the data.

Morningstar publishes an annual study called Mind the Gap that tries to measure exactly that. In the 2025 edition, funds returned 8.2% a year over the decade through 2024. The average dollar invested in those same funds earned 7.0%. That 1.2 point difference is the cost of investors' own timing, and it works out to roughly 15% of the funds' gains.

That figure is also disputed. A paper by Fulkerson, Jordan, Riley and Yan in the Financial Analysts Journal argues the 15% number is wrong.

So, the most quoted piece of evidence that investors fail at patience is itself contested. Something is being lost to bad timing, probably a meaningful amount. How much is unsettled, and I'd rather tell you that than round it into a cleaner sentence.

Key points:

All of that is about the industry. The more interesting question is what happens when you use the term for yourself.

So, here's my own number, before I go any further. I think 5 years or more is long term. I couldn't tell you why 5 and not 4, or 7. It's my take. I don't know why 5 feels right, and I don't know whether it is.

Which puts me in the same room as the 92%. I have a threshold, I use it, and I can't fully defend it. That survey found a room full of people with a number they'd never had to justify.

When a firm says the phrase, it's marketing, and somewhere a compliance department has read the sentence. When you say it about your own position, at 11pm, to nobody, it's doing something quieter. It's buying you permission not to look.

The same sentence does the same work at both ends of the market. A trader on a forum who is down 60% announces that he's in it for the long term. A firm managing hundreds of billions puts it on the homepage. One of them is wearing a better suit.

Here's the difference I keep coming back to. Real patience has a condition attached to it. You're holding because you'd buy it again today, at today's price, knowing what you now know. The shield has no condition attached. It has a duration instead, and a duration can always be extended by another year.

 Why the phrase lasts longest where there's no price

 There are two more reasons this term has such a long life in a portfolio like yours. The first is that nothing argues with it.

A public stock argues with you. It prints a price every day, and some days that price is a number you would rather not see. It's irritating, and it's also a forcing function. Something outside your own head keeps raising the question whether you like it or not.

A private position doesn't do that. The mark arrives once a quarter if it arrives at all, and it comes from the same people who would prefer you stay. Often there's no number at all between one update and the next.

So, the phrase runs unopposed. You can hold something for years, tell yourself you're a long-term investor every time it crosses your mind, and never once meet a fact that argues back. Carelessness has nothing to do with it. This is because nothing in the structure interrupts you.

The second reason is that somebody has an interest in the quiet.

I'm a limited partner in a commercial property I invested in over 10 years ago. It's still live. I've gone back and re-examined it at least twice along the way, so this isn't a position I stopped looking at.

Somewhere past the 10-year mark I raised the topic of maintenance with the operator. It's a building, and a decade is long enough for maintenance numbers to stop being theoretical. Maintenance on a building that age gets paid for out of the property, which makes it a question about whether holding still makes sense. His answer was that it still cash flows, so why sell. He says money has been set aside for maintenance, and I have his word on that. We had this conversation once.

Worth noticing where the phrase sat in that exchange. It came back at me as the answer, from the person who earns fees for as long as I stay. "It's still good, why sell" costs him nothing to say. And it can be said again next year, and the year after that, in exactly the same words.

None of that makes him wrong. The deal may be fine, and I'm still in it. What it means is that the argument for holding came from the party who benefits from holding, with nothing to contradict him.

 What usually ends a run like that is a liquidity event you didn't choose. A capital call, a tuition bill, a year you actually need the money. That's a poor moment to work out what you really think about a position you've held for over a decade.

Three honest replacements for the phrase

There's an honest version of "I'm a long-term investor," and in my experience it's one of three.

 The first: "I'd buy this again today." That one is patience, and it's worth saying plainly, because somebody could check it.

 The second: "Selling would mean admitting I was wrong, and I'm not ready to do that yet." Uncomfortable, but it's a real position, and it's honest about which problem is being solved.

The third is the one I hear most: "I don't know, and I haven't looked."

 None of those three substitutes sound as good as "I'm a long-term investor." That's exactly what makes them useful.

 So, consider a different question, one that has nothing to do with counting years. What would have to be true for you to buy it again today, at today's price, with what you know now? If you can answer that in a sentence, you're patient. If you'd have to think about it, you have something worth looking at this week.

 And the harder one, the version I find most people skip: what would you need to see before you would sell? A position that can't disappoint you is usually one you've quietly stopped evaluating.

In 1994, Peter Lynch gave a lecture at the National Press Club. He mentioned that he'd asked audiences like that one how many of them were short-term investors. He'd never had anybody raise a hand. Then he said this:

"Everybody in the world is a long-term investor until the market goes down."

That was 28 years before anyone counted 7,000 mentions across 20 websites. The term has spread a long way since. The test hasn't moved at all.

So, here's what I would like to know, and it's the one question in this issue I can't answer on your behalf.

 Which position have you been calling a long-term investment the longest?

 And the honest question underneath it. Is it still there because you'd buy it again today? Or because selling would mean saying out loud that you were wrong?

I'll go first. Mine is that building. I've asked the question at least twice now and I still don't have a clear answer, which is its own kind of answer.

 Hit reply and tell me which of the two it is. You don't have to name the deal, the sponsor, or the number.

 Most people who read this were sent it by someone they trust. If you're that person for somebody, forward it to them.

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Disclaimer: This is not financial advice. This material is for educational purposes only and not financial, legal, or investment advice. Private investments may be risky. Do your own research and consult licensed professionals before acting on anything specific to your situation.

Until Monday.

Alina