Long Positions

A Long Position (often called “going long”) is the simplest and most common strategy in investing. It involves buying an Asset—such as a Stock, bond, or real estate—with the straightforward expectation that its value will increase over time. When you take a long position, you become an owner of that asset. For example, buying shares in a company makes you a part-owner, or Shareholder, of that business. The goal is to later sell the asset at a higher price than you paid for it, pocketing the difference as your profit. This approach is the bedrock of traditional investing and aligns perfectly with the Value Investing philosophy, which focuses on acquiring stakes in wonderful businesses at fair prices and holding them for the long term. It’s an inherently optimistic stance, reflecting a belief in the future growth and success of the company or asset you've chosen.

For a value investor, going long isn't just a speculative gamble on a rising price ticker. It’s an act of partnership. You’re not just buying a piece of paper; you’re buying a fractional interest in a real, operating business with factories, employees, brands, and customers. Your success is tied to the company's ability to generate profits, innovate, and grow over many years. This mindset separates the investor from the speculator. A speculator might go long on a stock for a few hours or days, hoping to ride a wave of market sentiment. An investor, however, goes long because their research indicates the business is fundamentally sound and trading for less than its Intrinsic Value. The focus is on the long-term performance of the business, not short-term market noise.

To truly understand a long position, it helps to know its opposite: Short Selling (or “going short”).

• A Long Position is a bet on success. You buy low, hoping to sell high. Your profit potential is theoretically unlimited (a stock can keep rising), while your maximum loss is capped at 100% of your initial investment (the price can't go below zero).
• A Short Position is a bet on failure. An investor borrows shares they don’t own, sells them immediately, and hopes the price will fall. If it does, they can buy the shares back at the lower price to return to the lender, profiting from the price difference. The Risk here is flipped: the maximum profit is capped (if the stock goes to zero), but the potential loss is theoretically unlimited because there's no ceiling on how high a stock price can climb.

Imagine two people looking at a hot air balloon. The person with the long position has bought a ticket and is inside the balloon, hoping it soars to new heights. The person with the short position is on the ground, betting the balloon will crash. For most ordinary investors, it's far more pleasant—and generally safer—to be in the balloon.

The long position is the natural and primary tool for the value investor. Here’s why:

• Ownership Mentality: It aligns perfectly with the idea of owning a piece of a great business.
• Capturing True Value: It allows you to profit from the long-term growth of a company's earnings and economic power.
• Passive Income: It enables you to collect Dividends, which are a share of the company's profits distributed to shareholders.
• Power of Compounding: Holding for the long term allows Compound Interest to work its magic, where your returns start generating their own returns.
• Favorable Risk/Reward: As explained above, the asymmetric risk profile (limited loss, unlimited gain) is far more appealing than that of short selling.

So, how long is “long”? There's no fixed answer. For legendary investor Warren Buffett, the preferred holding period for a wonderful company is “forever.” The key takeaway for a value investor is that the holding period shouldn't be determined by a calendar. It should be determined by the business itself. You should remain in your long position as long as the company continues to be a great business that you'd still be happy to buy at its current price. The strategy is often synonymous with Buy and Hold, but it’s more accurately described as Buy and Monitor. You sell only when the original reasons for buying are no longer valid, the company becomes significantly overvalued, or you find a much better investment opportunity.

Let's say you've done your homework on “Solid Bicycle Co.” and believe its shares are undervalued.

1. You take a long position by buying 100 shares at €50 per share.
2. Your total investment is 100 shares x €50/share = €5,000.

A year later, Solid Bicycle Co. reports fantastic earnings, and its Stock Price rises to €75.

1. Your position is now worth: 100 shares x €75/share = €7,500.
2. If you sell, your profit is €7,500 - €5,000 = €2,000.

Unfortunately, a competitor disrupts the market, and Solid Bicycle Co.'s business falters. The stock price plummets to €10.

1. Your position is now worth: 100 shares x €10/share = €1,000.
2. You have an unrealized loss of €4,000.
3. In the absolute worst-case scenario (bankruptcy), the stock goes to €0. Your maximum possible loss is the €5,000 you initially invested. Your bank account is safe from further damage.