Benefits (and Pitfalls) of Long-Term Investing

56 Pages Posted: 23 Oct 2014

See all articles by Geoff Warren

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Date Written: October 21, 2014

Abstract

This paper outlines the benefits of long-term investing, as well as the pitfalls. Three key advantages held by long-term investors include: the capacity to adopt positions where payoff timing is uncertain; the ability to exploit opportunities generated by the actions of short-term investors; and latitude to invest in unlisted and/or illiquid assets. These advantages provide access to a broader investment opportunity set than available to short-term investors. Strategies suited to long-term investors include: capture of risk premiums arising from the actions of short-term investors; returns from liquidity provision; value investing; exploiting pricing discrepancies across segmented markets; long-term thematic investing; adding economic value to assets through engagement and control; investing in complex assets; and certain types of dynamic strategies. Pitfalls of long-term investing relate to their reliance on expectations about the long-term, when the distant future can be hard to predict; and vulnerabilities related to organizational, agency and alignment issues. Investing in illiquid assets and dynamic strategies are examined in detail.

Suggested Citation

Warren, Geoffrey J., Benefits (and Pitfalls) of Long-Term Investing (October 21, 2014). CIFR Paper No. 40. Available at SSRN: https://ssrn.com/abstract=2513089 or http://dx.doi.org/10.2139/ssrn.2513089

Geoffrey J. Warren (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

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