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Be content holding and doing nothing

Don’t bother finding the next multi-bagger if you aren’t going to develop the conviction to hold it

 Over the last decade, I’ve been lucky enough to be invested in a few stocks that have gone up 5-10-20-30x over a multi-year time horizon.  From my experience, the only way to hold onto a big position after it makes a big move is to know the underlying company better than anyone else. Greed and fear will test your resolve, so you need to learn to keep these emotions in check. You need to believe in your due diligence and form an unwavering conviction.

 So how do you develop the conviction to hold?

 A lot of due diligence is on the front-end of a buying decision, but it certainly doesn’t stop there. The maintenance due diligence following the buy decision is even more important. For me, I talk to management regularly and keep close watch of all the ancillary forces and trends that are driving the company’s business. My “edge” is knowing my positions better than anyone else. This doesn’t mean I’m going to be right, but the more I know the better.

I think many misperceive high conviction for close-mindedness, ignorance, and arrogance. The conviction I’m talking about is quite the opposite. You need to constantly assess your positions and openly listen to counter arguments. Only then will you have the conviction to hold multi-baggers because you will understand all sides to the story. You also need to develop a thick skin. If you are not ready to be criticized for your convictions than you aren’t ready to make real money.

I believe most investors focus too much on selling strategies and not enough time on knowing what they own. Selling strategies such as, “Sell half after a stock doubles” or “When a position reaches 10% of the portfolio, sell it down to 8%” are meant for lazy investors. These selling metrics-formulas-strategies sound great in academia or when selling an investment strategy to a bunch of lemmings who can’t think for themselves. The truth is if you know what you own at all times, you’ll know when to sell.

In many cases the stocks I’ve owned were better buys after they doubled then when I initially bought them. In many cases when a position became 30% of my portfolio there was a reason for it.  The underlying business was doing really well, or institutions were just starting to nibble on shares, so why would I sell it. Just because a stock doubles, triples, etc, doesn’t mean it should be sold. Stocks should be sold when your maintenance due diligence shows something has changed. If you know the story better than anyone, you’ll likely get clues well before the rest of the market. When a company performs, and the story hasn’t changed, stop trying to change it. Enjoy the ride.

When a stock goes on a multi-year run there will be long periods of time when nothing happens. These are consolidation periods when old shareholders are selling and new investors are buying in. You will notice a 12-month period of time in this three-year chart where the stock does nothing. This is very normal.

A big part of successful investing is becoming content doing nothing. If you are in great companies, a lot of times your biggest risk is boredom. Warren Buffett’s famous quote, “Our favorite holding period is forever”. If he likes where the business is headed, he’ll continue to hold it and probably buy more. Don’t be active for activity sake. Remember, there are no day traders on the Forbes 400 list. Learn to be content holding and doing nothing.

from MicroCap Club

4 replies on “Be content holding and doing nothing”

Yes, Buffet said , “The best period to hold a stock is FOREVER”. But the same Oracle also said ” You should be careful enough ,as if they are going to shut shop the next day” , he also said ” you should know what you buy”. He studies a lot before hanging on to a particular stock. At the same time, the statistics you have shown indicate the losses he made some time. big losses indeed.
I think they reveal only a part of their original portfolio. Otherwise, it is surprising to see our own Buffet, Mr.Jhunjunwala’s open portfolio is full of weak stocks. Take for instance, the Spicejet, A2ZMaintenance etc….. I was watching his portfolio for the past one year…. The performance is no where near Dolly’s or VPs or AM’s…… But , at the end of the year, the News brokes out that Mr.RJ’s revenue is doubled……
They say too many things , just to divert people’s attention.
Was it in this blog that you wrote ” Don’t be misguided by what they talk, instead, see what they do”……

But , it is not to belittle the finest article I ever read on Stock holding.
I had my own lesson on this. Bought an ETF, lost 15% over an year and half, then shifted to a madcap, got 30% within one week. Enough ?
NO.
Browsed the net, got a very good scrip, within a month, got it doubled. On the other hand, a NIFTY stock gave me 10% over a period of Two long years.
YES.
Now tell me should I be holding on to the paper gold? Or should I rely upon my NIFTY stock….F o R E V E R?
This FOREVR I understand is not a hard and fast rule. It is a sometimes yes, some times no. BHEL made my investment blocked. But CCL Products , after a patient waiting for 5 years, got doubled in 6 months…….. Sold half of them, kept the profit free there. Yes, today, after a month it would have been another 10% more! but the sale was good! with which I bought RS Software and now doubled it.
I hope this adds some value to the article above.

You cannot compare an ETF with a Midcap. Their risk profiles are altogether different.
This is a good article.
It takes more guts to hold on to a stock which has tripped . Your multi fold returns will start only after that.

A reply after one year? Great! Lot of things happened meanwhile! TheGoldBees sank further, the Mid caps rose, fell and rose again….

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