Is Buy and Forget a Myth?

Investing Strategies
67

In this changing environment no stock is for buy and forget type.There will be phase when stock due to any reason become stagnant.When u r not monitoring them u r loosing opportunity cost

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But how would one know when the stagnant price is going to move? Timing the market or any stock is very tough for any expert. What I essentially make out from your reply is we should try being in the “hot” sectors/ stocks everytime because these are the ones who are moving! This may lead to great returns or very poor returns and the multi-bagger opportunities lost are worse than opportunity costs in my view!

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I am not saying to time the market or any stock.To be correct everytime in this regard is next to impossible.But we can definitely know where we r in the cycle.Tailwinds coming or not.Holding a stock which has already run much and has become excessively expensive is not a very gud idea according to me.Time to time not frequently churning is necessary. This is my personal thought. I may be wrong.

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There was even a study conducted where people who switch from company to company to miss out on opportunity cost eventually end up making less CAGR compared to holding on to the same winning formula.

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72

Ya u r true.If anyone has found value we should stick to it as long as its value remains intact.But major problem is that value and the purpose sometimes management sometimes some major macro event suddenly arises that affect the company severely . In these situations our purposes to remain invested also changes.One recent example that happened to me.I had invested in Route mobile for quite sometime .Business was doing well gud result and stock was also going gud.suddenly promoter sold his whole stake to one foreign company.What should be our course of action in this regard?

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73

As per peter lynch
-Common practice of buying and forgetting will not be successful

He recommands holding stocks until fundaments deteriorate and check your investment thesis at regular interval

Phleps also do not recommend putting them away and forgetting them

Please go through this thread
Buy, hold but don’t forget

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74

Peter Lynch : Buy, Hold and Monitor
Phil Fischer: Buy and Forget HQ Companies (not entirely)
Fisher was interested in high-quality companies with strong competitive advantages and growth potential.
He looked for management teams with a long-term vision and a commitment to shareholder value.

“Conversely, as such a stock rises to, say, 50 or 60 or 70, the urge to sell and take a profit now that the stock is “high” becomes irresistible to many people. Giving in to this urge can be very costly. This is because the genuinely worthwhile profits in stock investing have come from holding the surprisingly large number of stocks that have gone up many times from their original cost. The only true test of whether a stock is “cheap” or “high” is not its current price in relation to some former price, no matter how accustomed we may have become to that former price, but whether the company’s fundamentals are significantly more or less favorable than the current financial-community appraisal of that stock.”

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75

Most people sell the stocks that have risen while they are unable to sell the losers.
My besetting sin is entirely different. I research a stock and buy it, but quite often I lose faith in it if it falls or even when it meanders along. I start questioning my judgment. One example is West Coast Paper, which to me appears one of the cheapest stocks. When it did not do much, I started asking myself, “Are the days of paper over?”. I may look back at my decision in future and regret.

Similarly, I bought SKM Egg Products recently, as it seemed to me quite cheap in FMCG sector. Then the promoter sold some equity. And alongwith some other investors on Moneycontrol, I also wondered, “Should I keep a stock if the promoter himself is selling?” Within 20 days the stock rose by 20%.

Similarly, some months back I had scoured the list of shares at their 52 week low, and found PCBL. I bought it. Later I bought some for my daughter too. I again lost faith in my research because while the tyre shares were rising, it was not. So I sold it. Luckily I don’t tinker with my daughter’s portfolio. So, now it is 278 from 169.

My selling C G Power which I had bought cheap will rile me for a long time.

So, what lesson do we draw?

Unfortunately, I am unable to draw any lesson because one buys other shares and in a bull market the portfolio easily does well.

I keep reading about investors keeping their faith in a stock which keeps falling and then is stagnant for several years. My doubt is, need we wait for the Pardesi to return, like the heroines of the old films did, till our hair is gray? If the stock is down, shouldn’t we take another look at the company? Why wait at the platform when faster trains one could board keep going by? May be, I can enter the stock again later, when it inspires more confidence?

The meme is a light reflection on the fact that we really don’t reflect on our strategy till we are doing well.

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76

I firmly believe in buy, hold and forget it for atleast the investment horizon period. If my assessment is reasonably foolproof and if I have conviction in the story, I will not sell unless I need cash. Short term fluctuations actually don’t bother me. Some stocks of my portfolio (over 10 years) has proved to be multibaggers for me. I bought GAEL in 20, it’s now 360. I bought Berger Paints in 62, it’s now 574. I bought CCL at 56 and it’s now 629. Bought Can Fin at 20 and sold it at 2800 as I needed cash for down payment of my home. There are few more like these. My view is that you need to find cheaper values stocks, believe in story and then (almost) forget about it.

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77

Thanks. It is such stories that keep inspiring our dreams. And selling for down payment for your home? What else does one invest in stocks for? Congrats.

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78

If i have full conviction in any particular stock and have bought it at fairly valuation I mainly give it maximum 3 years. But if any major problem arises in managment i sell it before this period. stock can be stagnant for few months even when bought at reasonable price but you have to be patient in this regard to reap the future benefit. Too much changing trains can also delay your journey.

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79

I would agree that, 3 Years is a reasonable period for the stock.
My philosophy also revolves around investing for 3 to 5 years. Typically for Large Caps, 3 years could be reasonable period and for Small Caps, waiting for more time makes sense unless Stock becomes extremely overvalued, Business fundamentals worsen or Management Quality is degraded within 5 years.
During tough times, Small Caps will test your patience, and Large Caps turn around relatively faster after tough time (Similar to 2008-09 and 2018-19).

Apart from this, there could be some candidates which you can hold for 8 to 10 years as well.

These are some observations from my investment journey. These are not the suggestions.

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80

Buy and Forget is a type of a investment strategy amongst the many that exist. Like we have examples of cos that were part of some index but have gone bust - we have an many examples of co ls that have given astonishing returns over 15-20-30 years.

The key element to understand for Buy and Forget type investors is that during the stock selection process you will almost always have duds and the max you will lose is the entire investment in those duds so downside is limited but assuming that you also have a few winners the upside is limitless and will more than cover your mistakes.

This kind of plan requires you to actually not be impacted by movements in stock prices up or down so it’s suitable for those who have achieved some basic level of net worth to allow them to follow this path stress free. For active investors there is a constant itch to do something so maybe it’s not suitable for them.

I personally feel that it’s a great strategy to have provided that you have some understanding of how to pick long term bets combined with chart reading.

Atul Suri of Marathon Trends and mentee of RJ is one of those who has practised this and many of his videos can be accessed as well. Although he has experimented with different styles and picked one that has suited him

Best
Bheeshma

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81

I think you should start your portfolio thread if not already.
Lot of experience for all to learn from and also get inspiration for long term investing.

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82

Thanks a lot! I actually started a thread

https://forum.valuepickr.com/t/portfolio-of-a-novice-investor/116640/42

Writing is all over the place and very incoherent though. Will try to improve upon it in future.

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89

I buy stocks for long term. Specially, if you have invested in infra sector, you are bound to wait. No highway, tunnel constructed or a railway track laid in a day.

But then sometimes you have to act on the demand of the moment too. For example, I sold most of my stocks when the Adani shares were struck by the Hindenburg report.
For sometime I was feeling that many of the stocks were overbloated. There is no logic to 80 or 100 PE. And, Jio Financical Services has a PE of 8,296!

My instinct told me to sell them.

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90

All these companies that have destroyed wealth of investors have a simple pattern. They failed to sustain, let alone grow, their revenue and earnings which market punished appropriately. And it’s not as if they happened to be in a sunset sector where all their peers were equally struggling. Wockhardt revenue and earnings started declining and never recovered while sector leaders continued to do well.

In every sector, we can find companies that have built strong franchises over the years not just with luck or a product breakthrough but great quality of management and ability to excute better than their peers. Such companies tend to enjoy their market dominance for very long time. Researches have proven a strong correlation between stock performance of a company and quality of its leadership.

So when you have companies with strong pedigree of leadership, uncompromising corporate governance and a track record of execution, you would expect them to do very well over a long period.

So you have long-standing sector leaders such as HDFC and Kotak in banking, TCS, Infy in IT, SRF, Pidilite in chemicals, Asian Paints in paints, Bajaj Finance in NBFC, Nestle ITC in FMCG, L&T in Infra, Maruti in automobile, JSW in steel, Ultratech in cement etc. These companies have maintained their market leadership over many years both in terms of business performance and market cap. They have superior capital allocations, cash flows and balance sheets than their peers. And no wonder they have also proven be consistent compounders over a very long time period.

Now if I built a portfolio of such consistent compounders and applied “buy and forget” strategy , what are the chances that I’ll end up losing my money or generating sub-index returns?

Looking at their historical returns over 20-25 years (quite a long holding period for an investor) the answer is absolute zero. Now there is no guarantee that history will repeat itself into the future and stock market is realm of possibilities. But statistically speaking I’ll be comfortable “buy and forget” strategy if I had these stocks in my portfolio.

Where I’ll NOT be comfortable with “buy and forget” strategy is when my portfolio composition starts veering towards substandard companies.

Majority of retail investors invest in tier 3 and 4 stocks in the hope of making quick fortunes. They will avoid sector leaders because they require a long time horizon to generate returns and not many have patience to wait for 1 year, let alone 10 years, for a large cap tier-1 stock to work magic through its compounding power.

So when these substandard companies start delivering superior earning performances during a sector specific bull phase, everyone gets excited and we see massive retail participation. When sector specific bull phase gets over and investors face the reality check most of their capital is lost. Every one wishes they should have got out in time.

So in a nutshell buy and forget is not a myth. It’s just that it doesn’t work with all the stocks. In the market you get what you pay for. You buy bad quality you get bad returns.

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91

Have you read ‘One Up on the Wall Street’ of Peter Lynch?
His view is, you create real wealth only when you can find a stock not already in the kitty of the mutual funds. The reason is that in his view not much is left there to discover. You will find that almost all the mutual funds have HDFC, TCS, Infosys, Asian Paints etc.
In fact, Li Lu goes really to a view many would find extreme. He looks for the stocks on their 52 week low. And then researches on why they have fallen on bad days. Once he finds that a company had no good reason to face such times, he buys it. Here in the forum I read the turn around story of CG Power, but did not manage to keep it. That was missed opportunity.
When we talk of HDFC or HUL, we talk of safe companies. I believe we have to go beyond the marqee names, but when you buy outside the famous few, you have to really research. Of course I can’t research like a Madhukela does or a Vijay Kedia does, but we can do at least some basic research.
I am keeping some funds and waiting for the market to go down further, to buy.

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92

Yes I have read the book. Here is another view.

Problem with researching beyond discovered names is the quality of disclosures and corporate governance. You are relying on information provided by the company. During bull market every company will have good orders, strong balance sheet, appealing narrative etc. And it all sounds very convincing.

But no amount of research will protect us against dishonest promoters. Rising tide lifts all the boats and when the tide reverses, lots of companies and their investors are found swimming without clothes. Just do some research and check how many of so called undiscovered trades have made wealth for their investors in the long run. Yes, one could always find a Titan or Tata Motors in the heap of rubbish, but that requires a certain kind of courage and luck that not everyone will have.

Star investors like Kedia have kind of access and inside information that we’ll never have. They are sought after by promoters, of the small companies, who are willing to do deals with them to just get them to enter the stocks and move prices. So contrary to what we think, star investors don’t spend time researching companies; they do deals.

Plus we will never be able to buy the stock at the price star investors do (by the time news is out, stock would have run 2-3x) and exit the stock at the price they do.

To quote another genius, Charlie Munger, it’s always better to buy wonderful businesses (strong franchises) at fair prices than buying fair businesses (so called undiscovered trades) at wonderful prices. HDFC, TCS, Infy etc have been in the mutual fund’s kitty for last 20 years and yet they have compounded wealth for their investors over the years. Big and smart money will always go into quality stocks.

Just a perspective. Eventually everyone is right or wrong in the stock market depending on what year and month we are in.

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93

An investor understands this aspect of investing after spending over 10-15 years.
We have seen ample stories floating around claiming that, Yes bank is the Next HDFC Bank. Most of the investors are looking for Next HDFC Bank and very few are interested in today’s HDFC Bank. If you invest in the proven names, not only you can have a sound sleep but the earning shocks are also less and Stock Price shocks are also less.
You can enter such high quality stocks when people are not interested in it and Need to sell when every one gets interested in it.
There are such opportunities from time to time.
ITC was available at P/E of 10 in 2021, Coal India was also available at P/B of below its 10 Year Median P/B. These stocks are big names, and still can give you very good returns over next 3 years. Same is applicable to TCS and many other blue-chips from time to time.

I have learned this after long time and Wish that if if I could have understood it 15 years back, probably it would have been good.

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