Market experts freely use jargon such as ‘long term' ‘medium term' and ‘short term' assuming it is widely understood.
However, they do not agree on what constitutes long term, medium term and short term.
Short term traders in the financial markets usually consider one year as long term, six months as medium term and one month to three months as short term, said Mr V Subramanian, an active retail IPO investor.
Analysts say there is no clear cut definition for long, medium and short term (see table). Short term could range from an hour up to two years, medium term from six months to three years while long term, upwards of three years.
A long term investor is one who buys a stock when nobody is willing to, says Mr Arun Kejriwal, founder of KRIS Research. “He has the conviction about the potential of a company's business and is prepared to hold on even if prices go down by more than 50 per cent. He patiently plays for events such as a turnaround or acquisition to unfold. And it takes 18-60 months or more for this to fructify.”
Medium term investors stay put in the market until the impact of an event (say, implementation of government policy) materialises, added Mr Kejriwal. Those in for the short term usually ‘buy on rumour' and ‘sell on news'.
There are others such as Mr Waqar Naqvi, CEO Taurus Mutual Fund, who say that it is very difficult to put a number to these time horizons and it depends on who is putting the number.
Market-men said it is in the best interests of the investor to define the time horizon for himself when one speaks of ‘long term', ‘medium term' and ‘short term'.
Mr Sushil Mulye, Head- Technical Research at Gupta Equities said, “Long term is a sum total of many intermediate trends and comprises a horizon of three to five years or more.”
Mr Mulye said that very few look beyond the jargon and understand the pulse of the market and those who do, make money silently.
The difference in tenor arises depending on which party is involved. A broker is interested in generating brokerage while an investment banker in new deals.
Finally, experts caution that vaguely sounding jargon is often used to confuse or as justification for a call gone wrong.
It should also be understood that stocks, sectors and economies are seen to change direction in three to five years' time and this cyclical behaviour is also called long term.
An investor should understand that equity markets are risky and should invest only after evaluating one's risk appetite in terms of money and time horizon.
raghavendrarao.k@thehindu.co.in