In my opinion and experience its not a myth. If initial choices were made with some deliberation and keeping value in mind then not acting on the portfolio indeed can do wonders.
I started my direct investment journey in 2016 but started serious investing only in 2019. Initially I was tentative as to how I should invest… invest small amounts gradually, or invest lump-sum… invest in concentrated portfolio of stocks or maintain a fairly diversified portfolio. So, I invested in 14 stocks in Feb 2019 and invested equal lump-sum in each on the 1st day. However, market volatility scared me off and I liquidated entire portfolio and only again started building a diversified portfolio in a gradual manner a few months later.
I, however, kept monitoring that portfolio (in case I hadn’t redeemed it) and judged my active performance w.r.t that. And I have no shame in saying that my active performance has been significantly inferior.
So, in my analysis, the prerequisites of creating a Buy and Forget portfolio is the following:
- Give UTMOST importance to the management. Choose managements that have a long track record of execution and good corporate governance.
- Getting entry valuation right is very important. Better to start such a portfolio during bearish market.
- Choose businesses that have long structural growth runway.
- Choose market leaders which are much smaller in size compared to the market opportunity.
My own performance has been lagging mainly due to following reasons.
- I bought more when narratives were peaking, i.e. during bull market.
- I booked loss in positions where entry valuation was high and subsequently the industry went into severe headwinds (IT, Pharma).
- My initial positions in the stocks were less during the bull run up. I built positions only when the run up started and I became more confident.
The final fact is that it is impossible to get all the bets doing well. Some will under-perform surely. But, the performance of your out-performers will take care of the rest.
P.S: I understand that the timeline to judge buy and forget portfolio is much longer. So, I will keep monitoring the portfolio.