Are You Crazy To Invest For 5 Years & Above?

The above story holds true in real life. Quite often, we have frequent encounters with Mr. Fidgety, who catechize us with the question, “Who has seen the markets after 5 years?”, “What if there is a World War 3?” and “What if more appalling scams are unveiled in the future?”

Yes, all these arguments hold its relevance. In this by-the-minute changing dynamics such as investor sentiments, global factors, micro-indicators, etc.; stock markets also change at a rapid rate. And to make it more severe, the continuous strafe of media hype/news, makes us indecisive and restless about our investments. Bygone are the days where you come across any investor holding the shares of their grandfather.

So, Does ‘Buy and Forget’ Strategy Still Works?

The world changes every minute and with this, even the company’s revenues and their market cap keep fluctuating. So in light of the changing dynamics, can you adhere to the ‘buy and forget’ strategy for long? The obvious answer is NO!

So, does that mean you should have a short-term horizon or adopt the buy and sell strategy? The answer to this as well is NO. Sound like an Antithesis here, right?

Yes, we hold our conviction in long-term investing, but definitely, do not promote buy and forget strategy. How to achieve this? The first step is to design a portfolio comprising of fundamentally sound stocks that can stand the test of time. Having designed that, an investor needs to monitor those stocks on a periodic basis, to check for any alterations in the growth potential/fundamentals of a company. If there are, one should conduct portfolio rebalancing, to ensure that you are aligned with your financial goals.

Are You Crazy To Hold Stocks For Long?

As Warren Buffett rightly puts it, ‘Investing is a longer-term game. Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

Still, many investors believe that long-term investing is impractical. So, let’s have an example of few stocks which grew by 5-10-15 times in a tenure of 5 years.

Scrip*Price as on 3rd May’13Price as on 30th April’18Appreciation in %
MindTree2121085411.79
Maruti Suzuki16658808429.01
MRF1356779820488.34
Ajanta Pharma2111355542.18
Eicher Motors313231190895.85
Motilal Oswal Financial Services869811040.70
CEAT10915901358.72
*(The stocks listed above are only for illustrative purpose and should not be construed as the investment recommendation or our performance. It is safe to assume that few opportunities could be a part of the portfolio recommended to our paid customers.)

This means that if you would have invested INR 1 lacs in these stocks, it would have grown to the tune of INR 5 lacs and more. If you compare this with the returns Sensex delivered in the same bout, it would just sum up to 80% appreciation in 5 years.

Stealth secrets for Identifying Stocks For A Long-Run

The rationale behind long-term investing is buying value businesses. Here are few tips on identifying solid stocks:

  • Firstly, behind every business, there are people who run it. Look out for the stock which not only boasts of healthy balance sheets but also have a proven track record when it comes to management decisions and regulatory compliance.
  • One should also conduct Porter’s Five Forces framework, to ensure that the business is not overly volatile and does not face the excessive threat of new entrants.
  • Invest in a business which you can comprehend and circumvent the market noise and short-term fluctuations.
  • Lastly, the evergreen investing rule of remaining disciplined, patient and focussed on your long-term goals.

Value stocks are about as exciting as watching grass grow, but have you ever noticed just how much your grass grows in a week? – Christopher Browne