Defining a Long-Term Hold

Homework, people, is the most essential element of long-term investing.

No wonder they stressed so much upon homework in school. 

They knew what they were talking about. 

And, it has counted. I always took my homework very seriously. 

Things are no different in the markets. 

Do your homework well, and diligently, and the pay-off might surprise you. 

In the markets, you are not paid off with marks, but with appreciation in the value of your holding. 

So, what kind of homework goes into defining a long-term hold?

Today, we have stock-screeners, so use a stock-screener to spit out some potential long-term holds after defining the screener’s parameters as per your wishes. Choose a stock from the results of the screening that you might want to delve into. Then, delve into it. 

In scam-ridden India, the first things that one needs to look for are honesty and integrity.

Look very, very hard.

Do repeated fraud / scam / bribe searches. The web is your oyster. 

Look into salaries of top personnel. Low is good. If salaries are on the higher side, is it justified? Specifically, scrutinize the salary of the top promotor and the CEO. If not justifiable, just drop the stock. 

Look for acts of good governance. 

Openness.

Sharing.

Shareholder-friendliness.

Truth.

Responsibility.

Once honesty and integrity are established, go over the fundamentals. 

Overall, fundamentals will either meet your parameters, or they won’t. Also, it is you who is going to define the fundamentals you wish to gauge, and what you wish to see. 

Are you seeing what you wish to see?

No?

Discard.

Yes?

Proceed.

Is the stock going to be around even after ten years?

Gauge. Product, business-model, circumstances…

You think no?

Discard.

You think yes?

Proceed.

Is the business scalable?

No?

Rethink.

Yes?

Proceed.

Is there debt in the equation?

Are you comfortable with the level of debt?

No?

Discard.

Yes?

Proceed.

Get the overall picture. 

Are you comfortable with the overall feeling you are getting?

No?

Discard. 

Yes?

Proceed.

Look for an entry point. Open the chart and try and enter upon a base or some other technical level. If none is available, wait for a level to come, and then make your entry. 

Thus, you have successfully defined and entered your long-term hold. 

 

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Nath on Equity – make that a hundred

Long-term equity is 81). brought low.

The idea is to, if required, 82). sell it high.

Otherwise, 83). it is sold when you no longer believe in the stock concerned, for strong fundamental reasons. Or, it is sold when something more interesting comes along, and your magic number is capped. Then you sell the stock you’re least interested in and replace it with the new one.

84). Attitudes of managements can change with changing CEOs. Does a new management still hold your ideology-line?

Is the annual report flashy, wasteful, rhetorical and more of an eyewash? Or, 85). is it to the point with no BS? Same scrutiny is required for company website.

Your winners 86). try to entice you to sell them and book profits. Don’t sell them without an overwhelming reason.

Your mind will 87). try and play tricks on you to hold on to a now-turned-loser that is not giving you a single good reason to hold anymore.

If you’re not able to overcome your mind on 87)., 88). at least don’t average-down to add more of the loser to your folio.

89). High-rating bonds give negative returns in most countries, adjusted for inflation.

The same 90). goes for fixed deposits.

Take the parallel economy out of 91). real estate, and long-term returns are inferior to equity, adjusted for inflation.

92). Gold’s got storage and theft issues.

Apart from that, 93). it’s yielded 1% compounded since inception, adjusted for inflation.

Storage with equity is 94). electronic, time-tested-safe and hassle-free.

Equity’s something for you 95). with little paperwork, and, if you so wish it, no middlemen. In other words, there’s minimal nag-value.

Brokerage and taxes added together 96). make for a small and bearable procurement fees. Procurement is far more highly priced in other asset-classes.

One can delve into the nervous system of a publicly traded company. Equity is 97). transparent, with maximal company-data required to be online.

As a retail player in equity, 98). you are at a considerable advantage to institutions, who are not allowed to trade many, many stocks because of size discrepancies.

All you require to play equity is 99). an internet connection and a trinity account with a financial institution.

If you’re looking to create wealth, 100). there’s no avenue like long-term equity!

🙂