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Conceptually there are 2 ways to make money from your stock investment:

• Invest in the “forever” best stocks. These are stocks that will continue to be the best stocks in terms of growth and value creation for shareholders. If you find such stocks there is no need to sell them as their value and prices will continue to go up.
  
• Invest in undervalued stocks and when they become overvalued you sell them and reinvest the money into other undervalued stocks.
  

Given the Kodak and Nokias of the world, I am not sure whether there are “forever” best stocks. Even Warren Buffett who professed to hold onto stocks forever also sells some of his stocks. Have you checked to see what the stocks you hold are still the best today?
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I don’t have the ability to identify the “forever” stocks so I follow the latter approach. It works as long as you reinvest the money from the sale into other undervalued stocks. Conceptually your investment fund increase in size each time you sell and reinvest. That is how you grow your investment fund.

Or option 3: DCA into SPY and QQQ that tracks the largest companies in America (and to a great extend the world).

Here is an interesting data point, credit to Eugene Ng on Twitter: https://twitter.com/EugeneNg_VCap/status...05504?s=20


Perhaps another reason (beyond inflation, GDP growth, strength of it's currency, military, technology leadership etc.) why the US index always compound at a high clip; is that these index captures the top 1% of companies, who tends to keep winning as resource, competency, and efficiency consolidate to the top, based on Pareto's principle. 

In a way, is similar to your reason (1) as well. Winners tend to keep winning in a capitalist economy for a long time, before a bigger winner comes along.

hi i4value,

Of course there are no "forever" stocks. I don't think it is fair to paint alternative as looking for "forever stocks" because that is not what people do. The alternative is "forever" thinking about stocks that have a long tail wind, not hold forever - very different.

End of the day, the 2 ways you described are not very different, IMHO. The principles for both are the same - "forever" thinking, margin of safety and treating it like a piece of business. Only the method is different.

Weijian made a great point.

Recently came across a podcast where they discuss the term "maintenance due diligence". Even if the time frame is "long-term", periodically, we have to keep up with the companies' progress, and iterate if the original thesis is no longer valid, or evolves.

Like the old Russian proverb "Trust, but verify."

FYI, I do update my valuation annually. And you should not be surprised that the values changes year to year. Some times it is because of changes in the discount rate (WACC are affected by risk-free rates, risk premium and even Beta). Some times it is changes in the business performance. The interesting thing is that the year to year changes are within my 30% margin of safety.

If you buy appreciating assets, especially those that still routinely increases their earnings power, and not just distribute all earnings as dividends; it's only natural that intrinsic value fluctuates (preferably grow) with time.

I must admit the out of the 50 odd stocks that I track, the value does not go up every year. There are times when the value goes down even for the best of companies.