Sunday, June 7, 2009

Buy and Hold Approach - My Personal Experience

The Title "Buy and Hold" has been the buzz word in most of the stock market books, articles and related speeches. I am sure many people have reservations about it and I would like to share my personal experience regarding this. Does this approach make sense? Does it really give decent returns?. My answer to the above two questions is a resounding Yes. Like most of the retail investors, I have read many books and articles and each one contained approaches starting from technicals and trading to speculation and fundamentals. But the legends who have made billions always advise investors to buy good stocks and hold for a long term.


We all know that SENSEX reached 21000 in Jan 2008. But all of a sudden, the market euphoria started to recede and markets reversed the trend. In the current phase, I started investing when the SENSEX came down to 17000 thinking that the markets would not go down below 15000 or 16000. This time it was different and we have witnessed one of the worst recessions in history. Many companies which were once considered to be invincible’s have ceased to exist. People panicked and economic activity came to a halt. SENSEX started reaching new lows every day.

Since, I have invested some money when the SENSEX was at 17000, I had no other option but to average the stocks I had by buying continuously as stock prices reached new lows. But what I made sure was to buy the stocks that I believed would perform well over a long term.

Readers might ask why the hell I did not sell all those at that time and buy when the SENSEX came down to 10000 levels repeatedly. Of course I would have done that, had I got the Wisdom of Solomon. Unfortunately I did not and in fact never wanted to predict the impossible. Because, if there are 10 individuals involved in the market, then it is not that difficult to sense the mood of the people and act accordingly. But the stock market is a place where millions of individuals buy and sell and I do not think anyone can predict what would or what would not happen. So, I continued to buy stocks and backed my stock selection as well as the "Buy and Hold" approach.

So, I invested in good companies and waited for appreciation. I sticked with my portfolio of stocks and continued to accumulate but I stopped investing at 13000 as I feared that markets would go down further. It in fact came down to 8000 levels couple of times. During the downtrend, some of my stocks declined even 75 % but I believed that it would eventually go up and at least reach my cost value. I started buying some stocks again at 9000 levels but that’s a separate portfolio. I always wanted to check the performance of my old portfolio. In short I started buying at 17000 and continued to average till 13000. My portfolio was down almost 50 % when the SENSEX was around 8000. Still I believed in full recovery.

Finally the time came. Recession started slowing or at least people believed that way. Bad economic news stopped coming and markets made a rebound. Indian general Elections gave the verdict that markets and investors were looking for. People started buying in heaps and Foreign Institutional Investors pumped in as if there is no tomorrow. All the stocks in my old portfolio started moving up. It has now given a 20% return which means, the portfolio has registered 120% growth from 8000 levels. So, the verdict is "Buy and Hold" approach definitely works and it will give me good returns in next 5 years.

Alternative Approach

There are still people out there to question my wisdom. Of course I too know that I could have stopped buying at 16000 and invested all my money when the SENSEX was 8000 or I could have sold all my stocks at 13000 to limit my losses and ploughed back that money at 8000 levels. There are so many ifs and buts. But according to me, if you are not sure then just hold all your stocks. Never sell stocks for a loss if you believe in those stocks. If you think you have made a mistake in stock selection, then it makes sense to sell it and buy other good stocks. Otherwise it is always good to keep rather than register a loss.

There might be a select few who could have sold at 16000 levels and invested again at 8000 levels and by now they could have made millions. But the percentage of people who does that will not even reach 0.0001 %. So, why bother about them. Just believe in your stock selection and continue to accumulate irrespective of market movements. Hold it till you get the decent returns and sell it as soon as it reaches your expected returns. If not at least we should have the ability to sense the downtrend and sell it before that.

Conclusion

There are many approaches one can take but the approach which is safe with the potential of good return is "Buy and Hold". To do that we need to do couple of things. One is to make sure that we select stocks that are essential to the economy and livelihood with strong market presence and another is not to buy at peak valuation. If we do that, then most often than not, one can reap decent returns if not the best.

Kumaran Seenivasan

www.stockanalysisonline.com

6 comments:

Sunil N. Karande June 8, 2009 at 1:44 AM  

Nice information....Dear sir pls post a topic on :why rupee or dollar apreciate and depreciate?it would be grate if you educated on this...

Anonymous,  June 8, 2009 at 1:49 AM  

Dear Sir can you pls explain us what stock future and option is?how can we make money in this....lot of experts says that you will earn exceptional returns when the market zooms in stock futures...is it true?

jamesvaikom June 10, 2009 at 11:47 PM  

Sir,
Buy and hold is a good stratagy. But we must book atleast partial profit if we find valuation expensive and we are at huge profit. Some people think of booking profit only when they need money. At that time we may not able to sell at higher levels.

mohd June 12, 2009 at 11:07 AM  

Hello Sir
it is well said and truth but how often we stick to this Bye and Hold approach. i did mistake of selling at good levels and to enter again at lower levels.Once it was successful n i tried it again. lastly when market was at 10000 level i was almost out to enter again at 8000, but that is a dream now n missed a huge opportunity for small gains. lesson i learn t is to Bye and Hold. thank you

DARK KNIGHT ABHAY June 14, 2009 at 4:10 AM  

http://indiaunlimted.blogspot.com/2009/06/dhiru-bhai-ambani.html

any who wants to read dhiru bhai ambanis biography can click the above link.

its self authored with extracts from the polyster prince

income.portfolio August 13, 2009 at 1:14 AM  

Buy-n-hold works! But one needs to realize buy-n-hold will work only when one picks stocks based on similar mindset. Buying a company with trading in mind and holding it by waiting is not buy-n-hold philosophy. Buy-n-hold works when one buys at lower pricing (buying at highs do not work).

Good post. I am proponent of buy-n-hold.

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This is a blog about stock market investments, investment strategies, and related topics. Any statement made in this blog is merely an expression of concerned authors opinion, and in no case should it be interpreted as an investment advice to buy stocks, sell stocks, or for that matter advice for any other issues be it money related or not. By using this blog you agree to (i) not take any investment decision, or any other important decisions based on any information, opinion, suggestion or experience mentioned or presented in this blog (ii) verify any information mentioned here, independently from your own reliable sources (for e.g. a registered investment advisor) and thereby check for possible inaccuracies. This blog is to create investment wisdom among general population and the authors are not responsible for
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