Let me start by saying that like many Fools, I'm a big fan of playing the long game. Just like a certain much-quoted famous investor, my "ideal" holding period would be forever. There's nothing I'd like more than to sit by the pool sipping champagne and not even look at my portfolio while my stocks appreciate in value and the dividends continue to roll in.
But I think that Mr. Buffett is misunderstood by many people who think that holding forever is something of an obligation rather than an ideal. Sometimes the facts change, and as John Maynard Keynes is quoted as saying:
"When the facts change, I change my mind. What do you do, sir?"
Let's stick with Keynes, and his view that...
"In the long run, we're all dead"
During the Great Depression of the 1930s the classical economic view was that, over time, markets would adjust without (government) intervention. Do nothing, and everything will turn out alright in the end. As Alice-in-Wonderland's White Rabbit (and others) might have said:
"Don't just do something. Stand there!"
Keynes believed that in the depths of a recession it would be better to try and do something about it rather than just standing there and leaving it to market forces. In the long run, the recession may end, but in the long run... we're all dead.
By the time you find out, it may be too late
It's easy to not worry about the falling value of your pension fund or other investment vehicle, on the basis that by the time you retire the present economic problems will have been resolved and it will all be fine in the end. But what if it isn't?
If you simply bury your head in the sand, by the time you find out that you were wrong... it may be too late! You're retired on a much depleted pension pot, and you have less productive life left in order to do something about it.
Stocks are for the long term -- or so they say
We all know that stocks are for the long term, because that's what everyone tells us.
In the Foolish sense it may be true that if you really can identify good businesses whose shares are trading at good prices, and simply sit on them while banking the dividends, it will turn out alright in the end.
For most people, it's not the Foolish community telling them that stocks are a good long-term bet... and helping them to pick the right ones. It's the purveyors of "investment" products who advise their clients (without really knowing them) that "a stock market investment should be for at least 5-10 years" as though this is some magic one-size fits all ideal holding period, rather than merely a ploy to get hold (and keep hold) of your cash for as long as possible while encouraging you to bury your head in the sand and ignore the falling prices.
What if you'd invested in the FTSE 100 on 31 December 1999 (at 6,930) with a target retirement date of 6 March 2009 (when you discovered that FTSE 100 was at much lower 3,530)? You would have waited for more-or-less the prescribed 10 years, as you should, with only a half-size portfolio (ignoring dividends) to show for it. How you'd be kicking yourself that you hadn't cashed in after exactly 7 years in 2007!
Don't just stand there. Do something!
I'm suggesting that you don't just stand there while your investments fall in value, and that instead you do something about it. But "What do do?" is the million dollar question -- possibly literally.
I'm not suggesting that you do something rash like crystallising a 75% loss (which you spotted too late) only to see your investment recover. But you can think about how you let it get that bad before you started to ask questions, and next time you might consider taking a smaller loss earlier.
You might try some limited "market timing", not to catch the exact tops and bottoms, but to ensure that some of your profits don't just slip away while you go on holding for an arbitrary length of time. In Foolish spirit, you might try even harder to pick good stocks in the first place, but be flexible enough to see when the adverse price action may be telling you something about your stock picks.
Whatever you do, don't just invest in a managed pension, endowment (do they still sell them?), structured product, or other long-term investment product that has outlandish early redemption penalties to keep you trapped. And don't take at face value the salesman's hype that "it will be alright in the long run".
In the long run, we're all dead.