In last one year or so, how many times have you heard and read that “Buy and hold investing is dead”. I bet it is numerous times. I am willing to bet even more on the fact that almost 95% of 30 year old or below will make you believe buy and hold is dead and it does not work. And the examples cited are turmoil in 2008. In addition, the business media and brokerage houses will add fuel to this fire. Well, if they do not encourage you to trade, how will they survive? how will they get their commissions?
To me all these 95% of folks are “creating their own missed opportunity”. Twenty years down the line when these same folks look back on “today”, they will realize they missed an opportunity. They missed this opportunity because of their quest to make that quick buck in trade, the lack of real knowledge, lack of awareness, and lack of foresight, and not able to think what is important in investing.
- Many individuals claim to be followers of Buffet and Graham, but they do not really understand their investing process. Buffett advises index investing for individuals, Buffett is proponent of holding forever, Buffett focuses on intrinsic value, Buffett focuses on averaging in and out, Buffett focuses on understanding the business. And all of these Buffett fans ignore this. Ironical!
- Many individuals say they are long term investors. But their investing horizon is one year, two years, or three years. For them investing ends at three years as if businesses will stop to exist after 3 years. Ironical and intriguing.
Long term investing is about growing with the business. It is about investing in the business. The expectation in long term investing is that once you invest in a company, you are looking for management to keep increasing the “value of its business”. You are expecting management will use prudent financial management to increase profitability, share some percentage of profits, and at the same time keep growing. As the company or business grows the value of your holding grows. Your wealth grows. In order for this to happen, one need to be patience, one needs to keep track of how the company/business is performing. And this takes time.
Unfortunately, and for some strange reason, this “longer time” gets equated to the long term investing. And that is a losing preposition.
Look back at any SENSEX company or any NIFTY company, where they were 10 years ago, and where they are today. You will realize how they have grown. Just look at how their book values (not stock market price) have changed over the years. You will see value growth is in order of magnitude (and not few percentages).
The companies that have good growth, good business operations, good products, etc., their “growth in value is permanent”. Even if market dynamics brings it down for short duration, it is generally a temporary event. If the company’s fundamentals and balance sheet is strong, it will come back even faster.
Therefore, by not thinking long term, individuals are creating their missed opportunity.
long term investing, missed opportunity