In contrast, the genuine long-term investor is one whose objective interest is to keep holding the asset. What kind of investor would benefit from a true buy-and-hold strategy? The quality-growth investor. Why? What is different in the case of growth investing? Why would this decreasing return phenomenon not apply to all growth stocks too?
Indeed, isn’t it simply a universal truth of sound investment1 that, whatever the form and underlying merit of any financial operation, its return may only exceed the cost of capital – or discount rate – if it is bought at a price below value and sold at a price closer to or at value. Thus, shouldn’t a growth investment also benefit from a fast rotation? Why then would growth investing be more prone to buy-and-hold?
There is a little mystery here that needs to be further looked into. We call it “the long-term growth conundrum”. As we will see, to unravel it requires thinking in a dynamic rather than static way in order to understand that value sometimes is not stable but can evolve and increase overtime.