Short-Term vs. Long-Term Investing in Microcaps

Lukas (@Pixelresearch_ on X) brought up something I’ve been thinking about too: the idea that average holding periods have compressed from roughly six years to six months, and the argument some high-profile microcap investors have been making that short-term investing is simply the better approach. Lukas wasn’t buying it as a blanket rule, and honestly, neither am I.

Bad vs. Good Habits

Lukas’s pushback was one I found hard to argue with. Pre-revenue companies and pump-and-dump stocks can generate explosive short-burst returns, but those gains are difficult to systematically repeat. If you build a strategy around chasing that kind of stuff, you’re probably just training yourself to buy the wrong things faster. In Lukas’s view, the holding period should follow the individual thesis and valuation.

My Early Experience

I agree with that, but I’ll also be honest about my own early investing experience, when I pretty much had a short-term focus. Who doesn’t want to make money quickly, especially at 18 years old?

I was looking for pockets of explosive earnings and revenue growth, trying to get in a quarter before things really accelerated and then exit before the last good quarter, when bad guidance was coming. That approach averaged out to nine to eighteen months in practice, not because I was defining a time horizon, but because that’s how long the growth pockets tended to last. The strategy was enormously successful. It wasn’t until years later that I decided to also adopt a long-term strategy. We talk about this more in the conversation.

Short-Term Pain vs. Long-Term Rewards

The inevitable challenge you face when you also choose to adopt a long-term strategy is the painful decisions you’ll have to make when things don’t go as planned.

My longest-held positions, ten or fifteen years, are some that eventually became multi-year winners, but they weren’t planned that way. And yes, there were painful round trips along the way. Tss, Inc. (NASDAQ:TSSI), from $0.30 to $2.00 and back to $0.30 within three years before it eventually ran to $30, is a good example.

Some stocks never recover. But even those don’t break the long-term math if your hit rate is around 70% across the portfolio. The wins more than cover it.

The framework I keep coming back to when a stock isn’t moving is this: there are really two broad reasons it hasn’t worked. Either management didn’t execute, or the market just hasn’t caught up yet. The first usually means you move on, but it’s easier said than done if you’re emotionally attached to the stock. That’s the sliding-doors moment, and getting it right is genuinely hard.

The second, where the thesis is intact or the catalysts are tracking, is actually where we have an edge in quality pockets of microcap and nanocap land. These stocks are illiquid, institutional buyers can’t build meaningful positions, and the retail crowd is off chasing the shiny, low-quality pump names. That’s exactly where information arbitrage does its real work: finding a legitimate company that quietly mentions a data center strategy on an earnings call before anyone else is paying attention. That’s public information, but acting on it early is still an edge.

Balance

Lukas made a practical point I thought was worth flagging. Having at least one or two higher-conviction, longer-horizon positions in the portfolio changes the psychological experience of investing. When every position is a six-month catalyst trade, a single miss creates real pressure. A longer-term anchor, something you’re monitoring for thesis validation over years rather than quarters, provides a different kind of steadiness. He cited Versabank (NASDAQ:VBNK) as one of his current longer-term holds, pointing to a structured receivables loan portfolio growing at a 33% annual rate and a recent U.S. geographic expansion as the core of the thesis.

The Label Counts for a Lot Less Than the Process

I do think most serious, successful microcap investors eventually reach the same conclusion we did. The real risk of short-termism isn’t the holding period itself. It’s what it does to your stock selection process. If the pressure to make money quickly pushes you toward biotechs, pump-and-dumps, and zero-day options, the strategy is broken and won’t last long term.

If it pushes you toward finding undervalued companies with near-term catalysts and a solid long-term story underneath, you’re just investing with a tighter feedback loop. You’ll have a better framework for knowing when to sell or buy more, and you’ll be better prepared to understand where your downside is in market crashes. On the flip side, blindly defining yourself as a long-term investor can turn you into a lazy investor, unwilling or unable to move on and admit defeat.

Hope you enjoyed this summary along with the video. Stay tuned for a lot more of these types of conversations in the future.

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