Today I read a Fortune interview with Jack Bogle and he used a phrase that intrigued me – ‘renters of capitalism’. The phrase describes an investor which has a short term focus. This type of investor is a speculator rather than a long term owner of the stock. Jack didn’t get specific on how one defines short term or long term shareholders, but a recent article in Harvard Business Review does. In “What Good Are Shareholders?“ Justin Fox and Jay W. Lorsch point out that the average holding period for investors has dramatically shrunk. They report that:
“In the 1950s the average holding period for an equity traded on the New York Stock Exchange was about seven years. Now it’s six months.”
Their article covers broader shareholder issues and it’s worth the read. I just wanted to highlight this piece of it to give some perspective to Jack’s phrase.
So if you ever wondered about, or were frustrated by, a company’s focus on the short term – this is a good culprit.