I started this thread for a buy n forget kind of portfolio. I think people are better off getting multiple Index funds or just one if you prefer. NSE 500 (Motilal has an index fund for this) is the best index in India as it covers both large and small caps and contains the best companies listed in India. If you prefer only the smallcaps-midcaps , you can go for NSE smallcap 250 index fund. For international funds I would go for Nasdaq fund.
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The idea of holding on to HUL across generations is quite rare and awesome. It shows the temperament of the people who were holding it in the family. My question is what will be your rationale of buying more HUL stocks? In other words what factors will you look into when you buy a stock which you already hold? You are one of best person that could answer this.
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Yes, this is a very important question. With stocks like HUL, Colgate, RIL, Wipro, LnT and I will bundle ITC in there also, the fact that one might be holding it for more than 1 decade leads to questioning is this is enough of an allocation to this stock. Why? Simply cause these split and keep growing in % terms of the overall portfolio. It is almost like holding Nifty 10 or 12 or 15 and letting it do its thing.
I have found that in the long run, it is hard to really know if my Bajaj Finance acquisition will be what it become today, or if I take today’s example will Sasken / LTI / UPL / ApolloTyres/Kinetic/VIP/Sobha become a HUL or Colgate or Bajaj Finance of the future. And, hence some FA and TA combo analysis while doing a bit of in and out with a portion of the portfolio is needed.
And, then execute “patience” of holding beyond the thick or thin, which is really hard for new investors and new generation young investors. In the world where “Certificates with Distinction Number” does have to be noted, and Certificates does not have to be delivered, the ‘trigger finger is mightier than the sword’. Lots of strategies are also out there to get in and out, intraday trading, swing trading, algo trading, and also doing F&O on the holding (selling covered calls and buying unsecured puts). ALL this become distractions, wrinkles and also competing strategies and tactics for an individual without a documented plan.
“Long Term Holding is key to Wealth”. This statement will not change no matter how much we deploy, learn or challenge our minds since ultimately stocks are just e-paper version of a silent partnership in a business. And, business needs time to make, market and sell donuts to generate revenue and earnings. And, revenue and earnings are the key to stock price (efficient markets).
KKP
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This applied for old school companies. In digital Economy especially in technology domain, life cycle of companies/prodcucts have shortened such that if they don’t innovate periodically they get discarded as an afterthought. How do you reconcile this?
Aren’t we already away from the buy and forget it age of investing?
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I guess there were always different kinds of investing. Buy and forget investing existed decades ago, it does even now. Perhaps It was that India was not changing much back then, was trailing behind developed countries in everything by decades, they had ovens, we did not have stoves etc. And I guess now, this has changed, visible but on a certain level. So to that extent, yes, change is happening not just with technology but the overall consumption, in every sense of the word, has changed, and is changing fast as we are adopting and adapting.
But then again, until we remain as humans governed by emotions, we tend to do a lot of things the same way, no matter which millennium we live in. There is merit to the statement - “the more things change, the more they remain the same”. I think Bezos said that he is asked many times about what changes, and he said, that we should think what does not change.
So to look at everything through the same glass does not yield good results. Long term investing does hold merit w.r.t certain segments, but here one has to know a lot, cannot simply go against the market. One needs to have expertise first, then patience to see the story unfolding as he envisaged. Psychologically, even if one is proved correct after years, the victory may not taste sweet. Riding with the tides is relatively easy than going against one. Then there are companies which started out as something and are currently in a different sector. But even with these kind of managements, not every decision will be a success and one has to know about the management more than the business here. Like Buffett said that he likes businesses any idiot can run. Because even intelligent fanatics make mistakes, sometimes their decision might have stemmed solely from the fanatic part of their mind. Market does not like the decisions but they go forward and after some years the results of these endeavors will be known and applauded for their valor or ridiculed for their stupidity. Only time can tell.
Some things change because the system gets changed for better or for worse, due to multitude of factors, technological, societal, governmental. And some things do not change because at the end of the the day, we are humans, even after colonizing Mars.
Hence we have some companies that stood the test of time because they were in such segments, or kept on reinventing themselves. And there are some companies which bit the dust and disappeared due to their inability or rigidness.
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I don’t think so, there are always opportunities in the market which can be held for very long time say 20-25 years. Change was already there and change will always be there, a capable management will always cross the hurdle.
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In so many forums including VP, we have had the same argument of old vs new, Buy-n-Hold vs Trading vs Swing Trading vs No Buy-n-Hold etc.
Factors to consider for ST, MT, LT or VeryLT investing:
- How easy is it to get a business built?
- How capital intensive is the business?
- What will ensure that another business will disrupt the entire business model forever?
- Can the incumbent company catch-up with a few years of holding?
Some random yet relative examples would be Ford vs Tesla; Tesla vs TaMo; VodaIdea vs RIO-Jio; Kodak vs Apple; BajajFinance vs SBI;
The right answer is All of the Above. There is NO one investing style for everyone. If you stock has performed like a Bajaj Finance it is a Buy-n-Hold until it performs and someone else comes to take over their business. So, if LnTFin creates a Fin-Tech model that is 2x of BF and BF was sleeping at the wheel, then earnings / revenue / market-share will reflect it, and it might be time to diversify, but yet, not sell 100% of the BF, since they might just be 6 months behind.
TaMo is a permanent hold for me from decades. It has been challenging, but now it is being compared to Tesla of India. Lets see. Still holding.
KKP
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Hi All,
I have gone thorough this entire thread as much as possible.
Most of the time, I have a feeling that, Long term buy and hold kind of stocks are those which are in existence for 2-3 decades or at least for 15 years. In the hindsight, we may think that these are good long term stories which can compound the wealth but the question is how to ensure that, the stock which we select for long term today, will create that kind of wealth for next 20 years. For every successful HDFC bank, there is Yes Bank which has not created that kind of wealth. How to detect if we are not investing in next Yes Bank?
Similarly for every TCS, there could be Satyam or any other such company, so one need to be very careful while selecting the long term stock.
Even if we select best business based on the past track record, there is no guarantee that, it will create similar wealth in future. Corporate governance may lapse due to change in management.
So it is prudent to take the approach that, an investor can look for high quality stocks for next 4-5 years and keep reviewing its moat, performance, corporate governance at least once in a year. In some situations, you may like to exit from few stocks and enter into new stocks based on their improving moat and balance sheet.
Also, the sectors which have created wealth in the past will not mostly create wealth in next 20 years so taking very long term approach could be challenging. Better to look for quality business and buy it when it looks undervalued and keep reviewing its performance at least on yearly basis.
I will like to know if there are actual investors who have created wealth by sticking to same stocks for 20 years. I think, if they can share their story, that will help us to gain some insights.
I believe as Hitesh Sir has said, invest in high quality business and review it after every few years seems to be the practical approach for most of the investor.
Though I personally sometimes get attracted towards theory of long term wealth creation though Buy and Hold approach, but unable to practice it much.
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Buy and Hold works if you understand business , management integrity etc pretty well
Promoters are classic Buy and Hold investors in many companies . Most of us are Renters - We rent the stock when we think it is cheap or is doing well and exit when we feel it is not .
The Rental period could be 1 day to couple of decades - but it is still rental as we cannot change course of firm history like promoter ( landowner ) can …
But there are stocks which can become more permanent than others -
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ESOP shares - These are often Buy and Hold for lot of people as they emotionally connect , they know the business and also people running it
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Stakeholders Shares - Suppliers / Customers holding a firm shares could be for longer duration and business connect and understanding is better and information pulses are fasters
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But the most important is Location / country you live in or want to live - If you buy land / house in that country - You can buy Country Index ETF : set of shares of companies that are considered best in that country … This elf can be more permanent than most shares in your portfolio as it is betting on country rather than company - Some countries like US / India are better bets currently because of structural reasons … If you staying in India - better to bet on ETF like NV20 , Midcap 150 , - If history is any guidance you can make 16% ++ CAGR over 10 year period and if you follow asset allocation strategy … then mix it with Gsec ETF and your portfolio CAGR can exceed 18% …
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I think your thoughts above already have the “bingo” answer…HDFC group and house of Tata’s have been most ethical jewels of India.
When we drop down the bars of ethics, promoter quality, governance etc. even a small notch for some couple of notches extra growth or couple of notches better valuations …the risk to buy & hold strategy increases by several notches
…
The answer is and always has been crystal clear to us…it is only we, including me, who complicate things for that something “extra” …
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Yes, looks interesting thought. I always keep thinking how to select long terms stocks for future trends. Stocks which did well in the past and which are going to do well in future could be completely different. HDFC Bank and TCS could be the exceptions. Future wealth creators could be CAMS, CDSL, IEX, so on and so forth. But should we blindly consider them for long term wealth creation since these are the long term trends or is there better way to judge whether they will be consistent like HDFC Bank and TCS.
With my thought above, i did not specifically mean these two stocks but yes, these two groups are excellent ones to look forward to…and such similar promoters, if any.
IMO question in buy and hold strategy is not just about wealth creation but more about wealth preservation. Question we need to ask is can such companies, such promoters, such businesses have the ability to preserve and decently grow the wealth once created or not, can they increase the dividends subsequently at equal or rather greater rates than their profits (that’s because as super growth phase diminishes, payouts should increase), can they allocate capital subsequently at attractive growth avenues and be future ready etc…that’s because there are numerous stories of paper profits and wealth creation & subsequent erosion…
Many groups, promoters, businesses can create wealth…but only a few have the capability to preserve it…and IMO only such companies/groups should qualify as buy & hold.
Disc: views only for academic purposes. Not a buy sell recommendation. Not eligible for any advice & can be completely wrong in all my assessments
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Yes, this is the most important aspect of long term investing.
Those companies which can use the capital efficiently and maintain high ROCE will fall in this category.
Management quality will be the important criteria to identify such businesses.