A lot of investors think buying quality companies and holding them forever – will one day make them super rich.
Even the world’s most successful investor Warren Buffett had once again “Our favourite holding period is forever”
But does this strategy still work today? Do we still have those ‘forever’ companies that can be bought and kept forever in the demat account?
For small investors like you and me, the answer is no.
The NIFTY 50 was first launched in the year 1996. Since then, from the 50 companies that were a part of the first NIFTY list – only 10 have survived and those are Reliance, HDFC Bank, HDFC, Hindalco, HUL, ITC, L&T, SBI, Tata Motors and Tata Steel.
The remaining 40 have fallen out and have been replaced by others. In the next 25 years, many companies that are currently in the NIFTY will also fall out. Newer and better companies will replace them.
Today’s investors have to be far more pro-active. You don’t have to track the market everyday. You don’t have to frequently buy or sell the companies you hold. But keeping track of companies you buy has become extremely important.
Knowing when to sell is far more important than knowing when to buy!
Combining Fundamental analysis with Technical Analysis can make you a better investor. A lot of people say, the market cannot be timed i.e you cannot decide when to buy or sell stocks. This isn’t true.
If time is invested into learning technical analysis, buying and selling of stocks can be timed better – even for long term investors!
In today’s fast-changing world where disruptions are the norm, the market has become extremely dynamic. Technology has made the market far more efficient.
Computer based trading, significant increase in institutional investors, instant access to information from the internet etc have all made the market extremely smart – thereby making it difficult for small investors to beat the market and generate better returns.
The ‘Buy and Hold Forever’ strategy may work for a select few companies, but if your portfolio as a whole has to generate market-beating returns – you cannot buy and hold forever.
A business might be doing extremely well today, but may slide a few years down the line. That’s when the price will begin to fall, the charts will give break downs – this is the time to take your gains and exit. Before it’s too late!