I was talking recently to a fellow investment enthusiast about an early-stage company quoted on the Alternative Investment Market (part of the London Stock Exchange that allows smaller companies to float shares) that I suspected might have great potential. “What you want to do is buy some and then look away for five years,” I told him. The advice was well-meant but absurd—not because buying would have been a bad idea (it’s too early to tell) but because the chances that, having bought, either of us could resist looking at the share price for the next five years are nil. Despite the all but irresistible temptation to react to each new piece of information that emerges about the companies in which we have invested, the equally irresistible fact remains that investment is a long-term game and five years may well be too little time for a growing business to achieve its potential. The most useful lessons in long-term thinking that I’ve received have come from a couple of investments I have in young private companies set up by teams of entrepreneurs. The experience could not be more different from that of owning shares in quoted companies. First, I have a completely different relationship with these companies since I can speak freely and regularly with the management and get a much more “inside” view of how they are faring. Second, there is no daily share price quote to distract my attention, or theirs. If the main element in your relationship with a company consists of periodic trading announcements the information that reaches you will be only that which is suitable for public consumption, not the more unguarded content of a private conversation. Similarly, daily gyrations in the share price might indicate the changing prospects of the company—or they might simply reflect buying and selling decisions of other investors made for reasons that have nothing to do with how the business is actually doing. Owning stakes in small private companies provides regular reminders that building sustainable, profitable businesses in the real economy takes years, extraordinary levels of energy and commitment, and involves plenty of triumphs and setbacks along the way. The problem we face as investors in public companies is how to remain patient when we are forced to exist in “stock market time,” with prices that move from minute to minute and encourage an overwhelming focus on the present and immediate future. In the life of real companies, a month is often barely enough to win a new client and start doing business with them; the true value of that relationship will take several years to crystallise. We are encouraged by regulators, among others, to think of “liquidity”—the ability to buy and sell assets quickly and cheaply—as one of the unalloyed goods of investing. I’m not so sure. I’m very happy to hold shares in private companies that are unsaleable for the foreseeable future: it forces me to remain focused on the company’s long-term goals, and protects me from the extremes of short-term despair and euphoria that can prompt rash decisions. Investing in private companies and speaking frequently to their managements is the best reminder I could ask for that the small quoted companies I have invested in face many of the same challenges and will succeed or fail over the same extended timescale. Liquidity is a great advantage in some types of investment, but to me it is a mixed blessing. The mistakes I most regret have involved selling good investments too soon, having been panicked by signs of short-term trouble. Finding attractive opportunities is hard, so selling one when it stumbles only to see it regain its footing is maddening. For me, illiquidity is about the best protection from myself that I can get.