Thread - Long Term Investing

Myths, Facts, Experiences, Observations, Lessons, Future

Myth~Long term investing is buy quality business & hold forever

Experience ~Any business can evolve better with time or die down with time. Literally nothing can be forever

Review the business potential, fundamentals & sustainability regularly to stay put for right time horizon

Myth ~ Buy something you'd be perfectly happy to hold if market shut down for years

Fact ~ History was different, Present has evolved & future will be different too.

In history there was no technology / innovation, investment approach was passive even for individual investor.

Myth ~ Buy quality at any price

Fact ~ There is nothing like quality. Quality today may not be quality tomorrow

What matters is business potential (Business survival, growth potential, growth sustainability)

Be well researched to know if business potential is there for 3 years

Myth: Rich buy the bottoms.

Fact: Nobody can buy the bottoms. Rich just stay put at all times with regular inflow into growth n investments.

Ultra HNIs are connected to right folks to help grow their wealth in a meaningful manner.

Long term investing is more about portfolio strategy rather than individual stock picking.

Anyway stock picking is becoming very easy and is a commodity business now. Disruption is already here in the advisory services.

Focus on portfolio in terms of end goals, milestones, allocation, concentration, diversification, etc.

Even a 100x stock may not add meaningful gains to portfolio if it is 1% of allocation.

Even a 10x portfolio may not add meaningful gains to net worth if it is 1% of net worth.

There has been a common doubt if we should sell portfolio if we anticipate a correction.

First of all, anticipations are nothing but assumptions, predictions & speculations. Anticipations may or may not come true in impactful way.

It always make sense to book profits regularly and be aware of your stocks in terms of

~ business potential,
~ fundamentals,
~ growth sustainability and
~ valuations.

When to sell a stock

~ When the business potential turns doubtful
Or
~ When the company fundamentals deteriorate
Or
~ When the valuations turn sky high even after extrapolating the earnings few years forward.

Don't sell a stock just because the sky is falling.

~ Until what point should one hold

If you bought based on growth, let the first full numbers come out based on growth.

If you bought based on value, hold atleast until 20% more value remain.

If you bought based on both growth n value, hold until the growth comes to standstill

~ Should one enter again in the same stock

Stock that you have rode the complete journey and exited once.....is actually the best if you feel it is again coming back towards buying conviction.

People usually find new names; however same stocks keep giving opportunities again.

Portfolio takes time to move from 1 to 10; however it may take much lesser time in moving from 10 to 100.

Portfolio strategy is highly important to be focused upon.

Good stocks can turn bad.
Bad stocks can become great.

Business phases drive the potential for any company.

~ Over allocation can be extremely dangerous or extremely rewarding sometimes.

~ Under allocation can be waste or not worth.

Be thoroughly aware of your risk capacity.

If right Concentration is useful at times, staying enough diversified is the most important aspect to make it more meaningful.

Diversify first, Concentrate slow. Over allocation may do more harm than good.

Increase concentration step by step with every milestone towards upside.

Don't Buy All at Once

To maximize your returns, stagger your buys. This will also keep a check on your risk side.

Increase the allocation with every next step of your conviction.

Follow a milestone based approach.

Allocation to any extent is okay in liquid names but be very very controlled when allocating in illiquid names.

It's easy to enter & exit big in liquid name but exiting big in illiquid name is not always easy.

Leader Stock should have decent allocation in the portfolio to reap the best gains at overall level.

As part of Portfolio Strategy, If an upcoming Leadership Stock is in decent allocation, it can be a game changer.

Portfolio Strategy matters more than Stock Picking.

Where there is growth, there will be extra competition, extra regulation, & there will be extreme negative noises.

This is where leader company has many advantages over the rest.

If you are liking any sector, always have some allocation into respective leader companies.

Allocation diversification at different levels
~ Countries
~ Asset classes
~ Business Sectors
~ Number of stocks

Wherever you have highest conviction, follow a basket approach....be it country, asset, business

Depending on the portfolio size, depending on your capability to handle / track, depending on your risk capacity.....

You need to choose reasonably right number of stocks.

My thought for individual investors

~ Portfolio < 5 mn, Number of stocks around 5-10

~ 5 mn > Portfolio < 10 mn, Number of stocks around 10-25

~ 10 mn > Portfolio < 100 mn, Number of stocks around 10-25-40

~ 100 mn > Portfolio < 1 billion, Number of stocks around 25-50

While selecting companies, use below approach

~ Leader / MNC Companies

~ Prospective leader companies, high growth & innovative

~ Dark horses, hero or zero

~ Instant opportunities based on events, earnings

~ To satisfy the urge, highest risk ...speculative

We should exit out as soon as we realize that we are wrong in our stock picking.

Learn to take losses quickly, don't expect to be right all the time.

Learn from your mistakes, review self and just move on.

Ignoring business potential & reacting in panic in weak markets can make us sell at lows & buy again at highs.

You need to stay away from noise to stay focused on own convictions.

Opportunities aplenty at any point of time.

Few important things while managing things at portfolio level
~ Allocation (Diversification, Concentration)
~ When to exit
~ How to shuffle
~ Strategy based on portfolio value
~ Stock picking & portfolio strategy are two very different things
~ Behavior importance
~ Noise

Running after every opportunity is easy ;

However

Building portfolio with a strategy, with goals & milestones is what matters.

Short term gains without long term goals can become long term disappointments.