Why focus on the long term?

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Mitchell Fraser-Jones 7 August 2015 Est. reading: 2 min read

One of the defining features of our investment approach is our long-term view. We make investment decisions and set our investment strategy on a 3-5 year view but, often, we invest in companies for much longer than that.

Turnover in the CF Woodford Equity Income Fund in the year to 30 June 2015, for example, was 16.0% 1 which implies an average holding period of over six years.

The chart below is a great illustration of why it is important to think long-term about equity investing. Essentially, this chart is showing the historic probability of gain from the UK stock market 2 over different time periods, using data stretching back to 1965. If you had invested for 1 day, the data suggests you had a 55.2% probability of making a positive return. In effect, you might as well have been tossing a coin!

Chart showing the probability of a gain (total return) against the holding period

As the holding period lengthens, however, the probability of gain slowly improves. Over 1 month, the probability of a gain improves to over 60%. On a 3-5 year view, the odds are very much in favour of a positive return and, over 10 years, the probability of a gain improves to very close to 100% (indeed, the recent financial crisis spoilt a hitherto unblemished record for the UK stock market on a 10 year view!).

So, it is clear that investing over longer time periods should be beneficial to your financial health. The chart may look slightly different in 10 years time, but the trend is unlikely to change dramatically.

And, of course, this analysis is based on the UK equity market as a whole, with no attempt to overlay the potential benefits of active fund management. With an experienced fund manager employing a disciplined and proven investment approach to select the most attractive investment opportunities – and avoid the least attractive – we believe that these probabilities can be enhanced still further.

Time will tell, and past performance is of course no guide to the future, but we have long-term confidence in the UK equity asset class and in our ability to add value.

Important information

Past performance is not a guide to future returns.

The value of the fund and any income from it may go down as well as up, so you may get back less than you invested.

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority.

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address: 27 Old Gloucester Street, London, WC1N 3AX.

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