For all those who think that ‘Buy and Hold’ is an easy investment strategy, welcome to this post. This is one of the toughest strategjes to implement.

If you think you can buy some shares that are currently being touted on Cnbc everyday and like Rip Van winkle wake up after 20 years, you are wrong. Completely wrong.

Buy and Hold assumes the following:

you are very good at stock picking. Investing, like everything else is getting more and more difficult. So if you picked up a GMR Infra because you thought Delhi Airport is great, you would be sitting on huge losses. I am not sure if you will get a decent return over a 20 year period, especially if you have bought it at 74.

Companies will survive over the long term: there is one big A group listed company where the employees are ripping the company apart, and the price is going to be paid by the shareholders. Obviously I am not naming them, but I have made a quick dash to the exit, and have no regrets.

-Companies are run for shareholder Net Worth Increase: this idea seems to be old fashioned these days. Companies are run for employees, ego of the Chairman, employees doing CV building, VCs wanting to show off….the shareholder has been relegated to the 5th or 6th spot. So one has to be alert when such things are happening. Did you see HUL paying MORE royalty to Unilever? It is something to be alert to.

Regular, Continuous, Monitoring and being alert: My dad has held Hindalco since 1957 – and I am not sure whether it has beaten the index. So even companies which have survived very long, there is no reason to believe that it is a great buy and hold. Alertness to commodity cycle is important – I have done it in case of sugar, but not in case of aluminium and steel.

Irresponsible Idiots have got Buy and Hold a bad name: so many people who buy some big names ‘L and T is a good company’ or ‘Tatas are very responsible’ or ‘I always use Colgate toothpaste’ – such people are victims of ‘laziness’ not simplicity. If you cannot or will not pick stocks, please index your portfolio. I recently saw a portfolio with all well sounding names – but giving very poor returns simply because exit calls were completely ignored saying ‘it is a good company why should I sell’.

so just because you have read a little bit about Buy and Hold investing strategy, or Value Investing it does not mean it is easy to master it…be careful…

 

 

 

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  1. Mira D if your dad had invested in Kodak what would have u done? if he had invested in Hoganas, Cadbury, etc. what would have you done? if the future is not good, just sell.If you do not like the money, give it to charity.

  2. Stock Market is a case of 99 losers and 1 winner. I am not sure why common man enters this route of investment. They are better off investing in FDs even with negative returns comparing with inflation rather than losing all the money in the market that they do not understand.

  3. sorry krish and Dheeraj what are you doing on this site? This is an out and out ‘equity is best’ site. I agree with some communities which cannot/ will not understand equities. I am fine with them, love such people. They are the CASA of banks, – I am interested in their p/e.

    Shankar yes it works -because the fund manager is doing the ‘what to buy and what to sell’ for you. However if the fund is not doing well you MAY need to take corrective action.

  4. Hello Subra Sir,
    Thanks a lot for the article. It clearly shows complexities involved in picking stocks and “buy and hold” strategy. It is not everybody’s cup of tea. And certainly not of working population.
    Now onwards I am going to put my money in mutual funds and index funds only.

  5. Thanks for the article Subra Sir.

    I agree 100% with Sanjay. For people working in fields other than Finance/Stock markets, it makes sense to give 2 to 2.75% expense ratio annually to fund manager for their buy and sell decisions.

    In my opinion, the best investment one should make is in one’s own career. A doctor should try to update in his field and become a best doctor. Likewise, a programmer should try to update his technical / management skills to become a best programmer / manager (which in turn helps to get more salary/income = more SIP into mutual funds).

    Please write an article about “Investing in One’s Own Career”.

    Thank You

  6. I know you wont reply to specific stock queries but still putting it out for you.

    “Did you see HUL paying MORE royalty to Unilever? It is something to be alert to.”

    I am a holder of HUL.
    Are you suggesting to opt out? I was planning to reap dividends + growth for next 10+ yrs

  7. ‘Equity is always best’ forum,

    6 Yrs agao I opened a equity/dmat account and bought in good scrip. Subsequently due to work front issues I went into buy and hold strategy without any active trading. From Year 2 onwards, I was trying to cancel my equity/dmat account.

    Company says they can not accept the soft copy requistion for cancellation and also the scanned copy signed by me over e-mail. I send the courier and company says it did not receive it inspite of POD. Third, I submit in the branch and it says signature mismatch from the central processing unit.

    Every year, it is selling my stock to pay for the annual subscription charges towards trading and dmat account. I would have been peaceful had I invested this small amount in bank FDs. Looks like this equity company is going to sell my last holdings to fund these subscription charges this year.

    Meanwhile I become NRI and the issue becomes even more complicated saying all I have to deal with the branch of my account and central unit/head quarters would not entertain any correspondance. Then comes further blows that using the POA that I had given, I get e-mai intimations about enrollment into Derivates and MCX equity trading platforms by the company. For a common man it is too painful to understand these tricks and procedural hassles and is a day light robbery.

  8. @krish

    From your comment, i understand that your issue is related to “3-in-1” Account (S/B A/c + Demat + Trading A/c). If my guess is correct the “3-in-1” account is provided by I See I See….

    I also faced a similar issue with them few years back. I had 2 S/B A/cs and 1 Demat/Trading account. At that time, without any notice(email or SMS or newspaper) that bank has increased the QAB from Rs.5000/- to Rs.10,000/-). So i wanted to close the S/B account attached to demat/trading account and attached the another new S/B account to the demat/trading account. I visited the Trading Branch and the officer asked to write an application in plain paper. After some 20-30 days, they rejected that the plain paper application is not valid. Then i gave the application in the specified format (supplied by them). After one month they rejected that application also citing some flimsy reason. By that time the Bank has deducted Rs.750/- per account (Total Rs.1500/-). I lost cool. I sold all the scripts in the trading account (in one case the value of stock has fallen below Rs. 1000/- and their system did not accept my sell order. I have to buy few more to make the value more than Rs.1000 and sell it.). Also withdrawn my money in both the bank accounts. I went to their trading branch/office and gave application for closing the trading account. After that i went to their demat branch/office and gave application for closing the demat account. And finally went to Bank to gave two applications for closing both of my s/b accounts. The bank officer asked why i want to close the accounts. I was too tired by then(Trading Branch and Demat/Sb. Branch are more than 8 kms away) and i said, i would not like to disclose to him and requested to close the S/B/ accounts with immediate effect. After few weeks they sent a cheque for balance amount (i think it is interest earned in s/b account). I would have told my friends/colleagues/relatives more than 100 times about the bank/group and i hope in my life time i will never enter into any business with their group (except their mutual fund where the Subramoney.com’s favorite fund manager is in-charge).

    In my opinion, the New Age Private Banks depend/believe too much in technology that they don’t invest in their human capital. During my interactions, i found that their managers (even senior) & officers are mere dolls without any say in these type of issues and hide behind the centralized IT systems. “3-in-1” account is really 3 divisions(Trading/Demat/S.b. Bank) of the group harassing 1 hapless customer/investor. :-).

    After some cooling period, i started a Demat Account with an old private bank (where i have more than 12 years of banking relationship) and a trading account with a broker suggested by them. With this bank i am very much comfortable and i can approach the Bank manager/officers and get solution for any issues within a reasonable time period & follow-up.

    I suggest that you can open a Demat account with a Public Sector Bank and use the Demat Transaction Slips provided by the existing DP to transfer your remaining shares. Of course, dealing with public sector branch requires some patience. But there at least the buck stops with the branch manager (instead of hiding behind centralized IT systems).

    Thank You.

  9. Dear Friends,

    As per Charlie Munger, one should approach direct stock investing knowledge as a subset of Worldly wisdom. So, first try to learn more about how the world around you runs, what makes it tick. learn about finance, accounting, psychology, economics, physics, history… all major subjects…at least the basics.

    If one thinks, only ppl with finance and market background are meant to invest in direct stocks and then it’s not very far from truth.

    But if one doesn’t have time/energy/inclination to learn so many other things which are not directly related to his profession, then sure MF’s are his best shot and the most logical thing to do.

    My personal experience is, the quest for worldly wisdom (which was fueled by Charlie’s advice ) has given me a better perspective of work, people, life, stock market…. Investing returns too will come with time and knowledge.

    Regards
    Raja

  10. Subra sir,

    You reminded me of some old scars. i bought GMR infra (for the same reason mentioned in the post) at around 200+ some thing in 2007, had to offload it for a huge loss. Now i am more than happy with my mutual fund investments (right now invested in 4 funds- all large cap funds)—i only review them once a yr now. Sitting on more than expected returns now….aboveall mind is so free and peaceful now…..Thanks you sir for telling us what not to do( i read your blogs just to avoid commiting mistakes)

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