Does buy and hold forever still work?
Buy and hold strategy is one strategy that is adhered to by some value investors. The strategy is simple, buy stocks at reasonable prices and hold them forever because in the long run regardless of the volatility of the markets you will still earn a good rate of return.
The most famous advocate of this tool is none other than the legendary value investor, Warren Buffett who once said “Our favorite holding period is forever.”
The strategy is so profoundly simple that some people say that its impossible that you will get a good rate of return by implementing this.
Further, a lot of investing gurus has criticized the strategy saying that it does not work because if you don’t take advantage when the market over values your stock, you end up loosing an opportunity. Also there is the possibility that a company might do something stupid in the long run and in the end you will end up loosing your investment.
I will not discuss the nuisances of the buy and hold strategy here as I will be further discussing this in details as one of the tools used in value investing in a series of posts.
But does the strategy work? You might say, it worked for Warren Buffett, but what if you are an ordinary individual investor who knows nothing about the ins and outs of stock market investing.
Well it worked for, Grace Groner, a woman who invested $180.00 in 1935 and held on to the stock until her death in 2010. For 75 years, her rate of return was an astounding 15.13% compounded per annum compounded.
Grace Groner was a simple woman. She is not an investment genius compared to Warren Buffett. She is a simple ordinary woman who lived a simple life. She lived in small cottage that she received as an inheritance. She never owned a car, bought clothes at rummage sales and was never married. She worked for Abbott Laboratories as secretary for 43 years. In 1935 she purchased 3 shares of Abbott Laboratories stocks worth $ 60.00 each. Her share split many times and she continued to re-invest the dividends each time.
Grace passed away last January 19, 2010 at the ripe old age of 101 years old. Click here to watch this youtube video and you will be shocked how much her $180.00 is now worth !
Hi ! my name is Zigfred Diaz, Thanks for visiting my blog where you can learn stock market investing the Warren Buffett way and using other value investing methods ! Never miss a post from this blog. Subscribe to my full feeds for free. Click here to subscribe to D’Intelligent Investor by Email
Hello Zig,
Thanks for the stock information you have provided in your blog. It is very informative. I am new to stocks and have been following your blog in order to learn as much as I can before starting to invest in the market. Eventually I will be investing in stocks on along term basis (10 years at the minimum). My question is aside from JFC, which blue chips is good to buy base on my plan of long term investment?
Also, in your blog you mention about stocks as one of the best vehicle for investing. What do you think about forex? Do you think that aside from stocks do we need to diversify our investment (such as investing in mutual funds or bonds)? or is it better just to diversify the investment by choosing different types of companies in the stock market?
Cons
Cons: The best blue chips company to buy are those with good management, great ROE, progressing EPS, with a durable competitive advantage. I will be explaining these further in a post. Among those I consider as such are PLDT (TEL), SM Investments (SM), Jollibee (JFC), GMA7 (GMA), Ayala Corporation (AC) and almost all Ayala companies.
No, I do not consider Forex as a good vehicle for investing. Forex is very very tricky and very very dangerous. While it is true that the returns are great in fact much much higher than the stock market and within a short period of time, but playing the FOREX game is very speculative as there is too many variables to consider. I do not want to enter into any investment that does not give me a big margin of safety.
I am not saying you should not go to Forex. If you want to and if you have extra cash go ahead but this be warned that it is not for the faint hearted. If you must delve into Forex I suggest putting only about less than 5 % of your net worth or never at all. For me, I’ll never delve into Forex, Stocks are still the best investments.
Hi Zig,
First of all, excellent blog you have here. I am a newbie in stock trading and I mean newbie. In fact, I just started last week. I bought few shares of 2 companies from my initial fund of 5,000. Everyday, I logged on the internet (my stockbroker’s website) to see what’s happening on my little stocks. After few days, my total equity value went up to 6,200. I am happy and excited but honestly speaking I don’t know what I’m gonna do next. I’m planning to buy additional (few) shares of those 2 companies next payday, will it mean that I am going to buy them on that day’s price? And one thing, is buy and hold similar with Citisec’s EIP? By the way, Citisec is my stockbroker. Thanks
Edwin: Congratulations for taking your first steps into the world of investing. My advice to you is that the next best step you can make is to learn more about value investing. Read books, research the net. Drop by my blog from time to time. Value investing is the way to go in stock market investing.
Yes in a sense, Buy and hold is similar to Citisec’s EIP. But personally I don’t like the program. This is the reason why: http://www.stockmarket-investing.com/maids-are-investing-in-the-stock-market-shouldn’t-you-be/
Happy investing
Thanks Zig for your reply. Actually that’s what I am doing everyday since I started this stock market investing – reading business section of newspapers that I haven’t done before and browsing the net where I’ve found your blog. Some details are really confusing ‘though, but I’m sure I will also be able to learn those things in the future. Expect my questions in your blog in the coming days…
Regarding Citisec’s EIP, I’m glad you mention something about it. I was about to avail that program last week but something changed my mind so I did not take the program. It was still unclear to me how it works, until today.
I checked the link you gave…guess what? That was the first book I have ever read regarding the stock market. My boss gave me a copy of its e-book version and a week later, I enrolled at Citisec.
Going into the stock market, I checked the stock charts of some great companies listed at PSE, it looks like the trend is going down after they went peak high early part of this month. Have you noticed it or it was only me?
Edwin: Yes the trend is going down. But as value investors the trend really doesn’t concern us. What concerns us is the individual fundamentals of the company. If a company is a wonderful company with durable competitive advantage that can be bought with a sufficient margin of safety or if the company is greatly undervalued then we buy. Doesn’t matter what the trend looks like.