Buy and hold, but monitor your investments regularly

10 Best Penny Stocks To Invest In Right Now

I remember that when my dad was an equity investor 15-17 years ago he would hold equity stocks for an average of 3-4 years and at times more. In those days information dissemination by corporates was limited. There was nothing like equity research the way it is today and apart from the annual results and AGM there was no connect with the management.

Also, since there were no FII investments, impact of global events was marginal, if any. This has long changed. In today's globalised, internet connected world, where every piece of local and global information is analysed and dissected and regulatory requirements entail constant communication from companies, there is a deluge of information and attendant fluctuation in stock prices.

As a result the propensity of investors to trade has increased manifold. Simultaneously, with the advent of electronic  trading and demat holdings, the ease and convenience of trading has increased abundantly as also the commission rates have come down to miniscule levels, again enticing investors to try and make the most of stock price fluctuations. The economic environment has changed dramatically over the years and many new business opportunities have emerged.

The top companies of today are radically different from the high fliers of yester years. Some of the Top Business Houses of 1960-70s are nowhere to be seen. In today's world of T20 cricket and algorithmic trading, there is a constant dilemma of whether to buy and hold or to give in to every piece of news and information to make that quick buck.

To quote the legendary investor, Warren Buffet, Investors should 'see a stock not as something with a ticker symbol that wiggles around but to think about it as part of a business. Don't get elated because something had gone up or depressed because it went down.'  Again to quote him 'Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.' 

To successfully implement buy and hold strategy it is important that the stock selection is very astute with utmost  emphasis on management quality, sustainability of businesses and  sufficient margin of safety when investing and the psychological and mental stability to withstand long periods of notional negative returns.

Buy and hold strategy if implemented diligently helps in lowering the probability of wrong decisions, reducing transaction costs and tax outflows and normally enables to achieve superior post tax adjusted returns. Having said that it is imperative that investors regularly monitor their portfolios and analyse  the business prospects, management decisions, valuations etc. to reinforce their original beliefs. It is important that this monitoring be periodical and at the same time not too micro.

The trick is to be able to take the call when the going is bad for a  company --- that is, the headwinds being temporary, does the management have the wherewithal to make necessary adjustments? It would also be wise to question if  the market has over discounted the temporary setbacks. If investors devote sufficient time and invest in businesses which they understand, implementing a buy and hold strategy is suitable. Investors looking for long term capital appreciation and having adequate patience to stay invested across cycles should only think of attempting buy and hold strategy.  

To summarize, in today's world of instant gratification and inundation of information and experts(so called) , it is a challenge to shut out the noise and not get carried away by the temporary hype about stocks, sectors and managements. Successful investing is all about the time you are invested for than about timing your investment. It is about investing to your strengths and riding your successful investments over a sufficiently long period of time and  being patient enough to wait for your sweet spot than worrying about having a share in the pie of every success story going around.