Equity Vix: Duration & Volatility

Yesterday's Wall Street Journal contained a piece on equity holding durations, trading frequencies and volatility.

Among the interesting factoids cited by the article were these:

-in 1999, the average holding period for equities was more than a year.
-in 2006, the average holding period for equities was less than seven months.
-The CBOE's volatility index is at its lowest level in 10 years.

According to Justin Lahart, the Journal article's author, computing and communications technology are mostly responsible for the changes. Lower trading costs, decimalization, and increased computing power has allowed for some previously theoretically-only strategies to become reality. Such developments would tend to exploit inefficiencies in prices, moving them closer together.

Hedge funds are also believed to be a cause of the shorter holding periods for equities, due to their own need to meet quarterly performance expectations.

Funny how that works, isn't it? Even privately-held financial firms offer vehicles whose performance is judged over short time periods, just like the non-financial, publicly-held firms whose equities the hedge funds trade.

Reading the piece, however, brought me to wonder about the artificiality of the terms "trading" and "investing."

What is the difference? Perhaps trading is what you do to implement investment strategies.

However, my biggest surprise was that as recently as 1999, investors typically held equities for over a year. Even I haven't done that since I began actively using my proprietary equity strategy. For a brief time, the holding period was a year, but for nearly a decade, it has been six months.

Furthermore, I don't think there is any meaning to the equity duration timeframe. With trading costs so low, why should anyone overstay the performance of an equity they hold, relative to expectations about its performance, and the performance of other equities?

I cannot understand how, with rapid dissemination of information, low trading costs, and quarterly publication of company fundamental results, investors can justify planning to hold equities for as long as a year. There have been some equities which my selection process has chosen for as many as three sequential six-month holding periods. But I never planned, a priori, to hold the stock that long.

Rather, it is difficult for me to believe that most equities can offer an expectation of relatively consistently superior returns for over a year. Thus, I would not expect to buy an equity and expect to hold it for that long.

With all the reasons investors have for trading any given equity on any given day- price appreciation, breaking news, a better opportunity in another equity, cash needs- why is it so important for investors to hold equities for as long as a year? Furthermore, doesn't frequent trading contribute to more price information and, thus, an expectation of fewer large-scale price changes, i.e., decreased volatility? Isn't lower volatility preferable for any equity holder?

Based upon Lahart's article, I don't see any particular cause for concern in emerging trading patterns which support equity investments