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The Best Holding Period Is a Really Long, Long Time

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Recently, my Fool colleague John Maxfield highlighted data from M&T Bank showing that the top-performing S&P 500 (SNPINDEX: ^GSPC  ) components over the past three decades were all retailers. More importantly, those stocks would have turned Average Joe investors into millionaires had they bought and held them for a really long time.

For example, if you'd bought $1,000 worth of Gap  (NYSE: GPS  ) in 1980 and held it till today, you would have enjoyed a total return of 120,936%. Put in dollar figures, that means your investment would now be worth $1,210,363. That's crazy! It has to be some kind of one-off fluke, right?

Well, no! Had you spent $1,000 on L Brands in 1980, it would be worth $902,012 today. If you'd put down $1,000 on TJX  (NYSE: TJX  ) , you'd now have $878,104. A grand on Wal-Mart  (NYSE: WMT  ) ? How does $688,846 sound?

I've said it before, and I'll say it again: The most powerful tool you have as an investor is time. Time is what allows compound interest to take form and really boost your returns -- it can even grow $1,000 into $1.2 million over the course of 33 years. But only time can do that. Nonetheless, even though we know that as investors, we still have difficulty letting time and compounding do their thing.

That's why even though you could have been one of those lucky investors from 1980 now enjoying massive wealth, most investors talk themselves out of holding their big winners and sell too early. Even Warren Buffett has made that mistake. Of course, Buffett was only 11 years old when he sold too soon, and he's been a firm believer in buy-and-hold investing ever since. That's worked out pretty well for him.

Even more tragic than not buying Gap in 1980 and riding it until you became a millionaire is that you could be selling the next million-dollar stock today. While the past 33 years haven't all been good ones for Gap, TJX, or Wal-Mart, it wouldn't have been hard for a savvy investor with a little imagination to figure that Wal-Mart would still be around in 2013, or that Gap or TJX would still be selling the hottest fashions or offering great prices for years to come.

So before you place that next sell order, stop and think about the possible future of the company you're about to dump. Maybe the financials are a mess, but the business is still strong. Maybe the company is hitting a rough patch, but it operates in a sector that has years of growth ahead. Sometimes a company really does have a dim future -- a new technology could make its business obsolete, for example -- but run as many different scenarios through your head as you can before you push that "sell" button. Your future self might just thank you.

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Related Tickers

9/30/2016 2:55 PM
^GSPC $2172.52 Up +21.39 +0.99%
S&P 500 INDEX CAPS Rating: No stars
GPS $22.30 Up +0.60 +2.76%
Gap CAPS Rating: **
TJX $74.87 Up +1.00 +1.36%
The TJX Companies CAPS Rating: *****
WMT $72.26 Up +1.53 +2.16%
Wal-Mart Stores CAPS Rating: ***