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25-07-2023, 10:09 AM
I am a value investor so my holding period is based on a fundamental investor perspective. If you are a trader, you would have the trading rules to guide you.
I see 2 ways to grow wealth:
My track record with this portfolio strategy is that I have about 15 % stock turnover annually. Another way to look at this is that on average I hold a stock for about 5 to 7 years.
To be able to execute this portfolio plan:
The above explains why I am a long-term investor.
It is because business fundamentals do not change overnight. It may even take years for companies to turn around. It may even take longer for the market to recognize changes in business prospects.
The moral of the story? There are two things determining how long I hold onto my stocks
About less than 5% of my stocks fall into the last category. The good news is that despite this loss, overall I still beat the index.
For more of such insights go to An Introduction to Value Investing - confronting value traps
I see 2 ways to grow wealth:
- Invest in a portfolio that you never sell because they are the companies that can increase shareholders' value over many decades. Unfortunately, I cannot identify such companies.
- The other way is to start with a portfolio of undervalued stocks. When some of the stocks become overvalued, I sell them and then reinvest all the monies into other undervalued stocks. I then repeat the cycle for a different set of portfolio stocks.
My track record with this portfolio strategy is that I have about 15 % stock turnover annually. Another way to look at this is that on average I hold a stock for about 5 to 7 years.
To be able to execute this portfolio plan:
- I need to find replacement stocks every year. Thus, having several types of value investment helps this strategy.
- I have an investment process that delivers consistent returns that is independent of the type of companies in the portfolio. I find that value investing enables me to achieve this.
- I need patience. It is a plodding way to grow wealth. Effectively I am the tortoise in the race rather than the hare.
The above explains why I am a long-term investor.
It is because business fundamentals do not change overnight. It may even take years for companies to turn around. It may even take longer for the market to recognize changes in business prospects.
The moral of the story? There are two things determining how long I hold onto my stocks
- I hold onto my stocks until they are “ripe”. The duration is not something I set.
- After waiting for 10 years, I usually call it quits and sell the particular company, putting this as a value-trap and unhappily accepting the loss.
About less than 5% of my stocks fall into the last category. The good news is that despite this loss, overall I still beat the index.
For more of such insights go to An Introduction to Value Investing - confronting value traps