It is worthwhile noting upfront that both short-term and long-term investors have roles to play, and can be successful. However, they approach investing in different ways, aiming to exploit different advantages. An overarching benefit of long-term investing is access to a broader opportunity set. Long-term investors can pursue a wide range of investments and strategies, including those available to short-term investors, although in practice they may choose not to do so. Long-term investors are more likely to be successful where they exploit advantages that stem from possessing discretion over when they trade, and a tolerance for short-term volatility or near-term underperformance. One such advantage is the capacity to adopt positions where payoff timing is uncertain, e.g., investing where long-term value exists, but may not be recognized by the market anytime soon, or to capture themes that unfold over time. Another advantage is the ability to capture opportunities that arise from the actions of short-term investors, perhaps because they are required to trade or are being short-sighted in their evaluations. Examples include contrarian investing, standing as the buyer of last resort in a crisis, and harvesting risk premiums that arise from the fears of those with shorter horizons. A further advantage is the scope to invest in illiquid assets. This offers return and diversification benefits through widening the range of accessible investments. Against this background, the question arises: what characterizes a "long-term investor?"
