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Stock Holding Periods Growing Shorter

by Milo on August 9, 2009

The average time that investors own stocks traded on the New York Stock Exchange has dropped from three-to-five years during 1935 to 1980 to about six months today.  

jm080709image009

In other words, a NYSE-listed stock purchased today will likely be sold by February next year. Whatever happened to stocks for the long run?

The end of fixed stock commissions in 1975, which lowered trading costs, probably helped increase the velocity of stock trades, as did sophisticated computer trading programs that became prevalent in the 1980’s.  

Still, stock holding periods — a proxy for investor conviction — haven’t been this low since the speculative days of the 1920’s, just before the other Great Crash.  Perhaps short holding periods and the recent crash are just correlation, not causation.  But if we’d read our Yeats, the data might have given us pause:

Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Surely some revelation is at hand;
Surely the Second Coming is at hand.

Excerpted from The Second Coming, William Butler Yeats.

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