When it comes to investment horizons, investors should shoot to invest for at least the next five years. Of course, six to eight years might be better if we’re talking about a winner that has what it takes to continue winning through the decade. But, in terms of time horizons, I think five years is a sweet spot.
Though some investors might wish to view three or four years as a minimum timeframe over which one should hang onto shares of a company. Although it’s nice to stick with a time horizon and not hit that sell button prematurely, I do think there are special situations that could warrant selling well ahead of those five years.
Most notably, if a company’s fundamentals are fading or a disruptive force is narrowing its economic moat or withering it away entirely. In the fast-paced world of AI and agents, investors must stay in the know, especially when it comes to the software companies, which seem to be acting like the canaries in the coal mine. At this juncture, it’s hard to say whether the hard-hit software companies will experience a big bounce.
Whether it’s a U-shaped one, a V-shaped one, or if they’re destined to keep on going lower for the long haul, I do think that investors need to revisit the drawing board anytime there’s an existential threat. Of course, overreacting to what everyone else is panicking about is never ideal. But sometimes, there are scenarios in which a devastating collapse in the share price is more than warranted.
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Be careful when buying the dip in fallen growth names, especially in software
I won’t name individual names that deserve to have 50% or even 70% slashed off their valuations, but I do think that investors must think critically and consider the full extent of the downside risks when evaluating AI’s impact. Even companies that can pivot are not guaranteed to thrive in this new era, which has moved far beyond software-as-a-service (SaaS).
For example, in the 2010s, it might have felt wise to want to hang onto shares for life. But with the rise of agentic AI, I do think that some conversations need to be had before considering selling or adding on weakness. Is adding to weakness riskier than hitting the sell button when a force like AI is breathing down the neck of a company that you can’t properly value anymore?
Possibly. I’d say buying the dip could entail greater risks in some situations where a firm is ill-prepared to deal with agentic threats.
In terms of unstoppable stocks, I’d look for firms that are insulated from the rise of agentic AI. That means low-tech firms that have robust growth rates and the potential to benefit from the concept of “invisible AI,” or AI that everyday consumers can’t see but is actually creating ample value for a firm.
Aritzia stock: A better growth play for the long haul
I think Aritzia (TSX: ATZ) stands out as a fantastic momentum play that can keep running higher as its brand power grows while the firm doubles down on its strength in the U.S. market. Even if the consumer feels the pinch this year, Aritzia is small enough that any share gains, especially in the U.S., could translate into solid growth numbers.
Unlike a software play you’re considering buying on the dip, Aritizia has a more predictable long-term trajectory, at least in my view. Its fashions are resonating with the market, and what’s most exciting is the magnitude of U.S. growth that could be sustained in the coming five years.
As one of the hottest apparel plays to come out of Vancouver, B.C., I’d not be afraid to buy on strength, even at nearly 44 times trailing price-to-earnings (P/E). It deserves a premium because it has found a way to win when much of the industry is under pressure.
