As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

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This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

"For the things we have to learn before we can do them, we learn by doing them." - Aristotle

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Saturday, 30 November 2013

The One Thing I'm So Thankful for as an Investor


CW8888: I am thankful too as retail investor with long-term view and able to sit tight and be uncommon. I also diligently track and measure my long-term investment performance over the last 14 years since the inception of my portfolio in Jan 2000.


From Morgan Housel
Motley Fool One Senior Analyst
The Motley Fool

 
Hey Fools,

Hopefully you spent yesterday being thankful for stuff that really matters -- friends, family, health, happiness.

But I'm an investor, and this is an investing website. So let me digress to something a little less important.

I am so thankful that buy-and-hold investing still works.

Imagine you bought shares of the S&P 500 10 years ago and forgot about it, spending the last decade traveling, doing hobbies, and hanging out with your family. You finally get around to checking your account balance this morning, and see your investment is up more than 102%.

You're thrilled.

"Buy and hold works," you tell yourself.

But then you look around and see all kinds of articles, books, and advice proclaiming the death of buy-and-hold investing.

"Buy and Hold Is Dead (Again)" is the title of one popular book.
"The only way to make money in the equity market is to be nimble, and that means adopting a strategy that is not buy and hold," one article reads.

"Buy & hold is a relic of a bygone era when the economy was stable and consistent growth was the norm," another analyst warns.

None of this makes sense to you. What are these people talking about?

Ah, then you get it.

All of these investors spent the last decade trying to be "nimble", trading in and out of markets -- and losing a fortune in the process. Now they're bitter.  

The only people who think buy and hold is dead are those frustrated with their inability to follow it.  
Buy and hold still works, and it's going to continue to work for those who buy a diverse portfolio of good businesses at good prices and hold for the long run. Two wars, the worst recession in 80 years, a financial crisis, a housing bust, and government shutdowns weren't enough to prevent patient investors from more than doubling their money over the last decade.
 I'm so thankful for that.

You should be, too.

One thing I've found to be amazing over the last five years of ups and downs are the number of investors who had a bad month, or a bad quarter, or even a bad year and assumed it meant the market was broken, and that buy and hold was dead. In reality, it’s the other way around: The reason you can earn great long-term returns in the stock market is because we have a downturn like 2008 once in a while. That’s the cost of admittance. It’s normal.

The reason so many investors think buy and hold doesn't work anymore is because we have a culture obsessed with short-term thinking. It's endemic to our entire society, but nowhere is it more obvious than in investing.
One of my favorite investing stories is from BlackRock CEO Larry Fink. Fink was having lunch with the CEO of one of the largest pension funds in the world. "We're investing for the next generation" the pension manager said. "So how do you measure your returns?" Fink asked. "Quarterly" the manager said.
That's most people's problem. We think we're investing for the long run, but we measure success in the short run.



Once you get over this mental roadblock, the value of buy-and-hold investing becomes clear.

Now, this doesn't mean you can buy the market at any time, at any price, and do well. The higher the valuation you buy stocks for, the lower your future returns will likely be, and the longer it might take for buy and hold to work its magic.

But it does work. I've dug through hundreds of research reports and sifted through piles of historic market data. I've found that the single biggest factor separating successful investors from losers is simply the amount of time they have been investing for.

Want proof? I took market data going back to the 1870s and calculated the maximum and minimum returns you could achieve by different holding periods. These are real total returns, meaning they're adjusted for both dividends and inflation. Have a look:






If you're investing for a year or two, you are flipping a coin. Stocks might go up or down, and you have no way of knowing which direction. But if you can hold for 10 years or (ideally) more, the odds turn overwhelmingly in your favor.  

This doesn’t mean bad things won’t happen to markets. But time has a way of smoothing bad events out. Think of it this way: We have good historical market data going back to the middle of the 19thcentury. During that time:


  • 1.3 million Americans died while fighting nine major wars.
  • Four U.S. presidents were assassinated.
  • 675,000 Americans died in a single year from a flu pandemic.
  • 30 separate natural disasters killed at least 400 Americans each
  • 33 recessions lasted a cumulative 48 years.
  • The stock market fell more than 10% from a recent high at least 97 times.
  • Stocks lost a third of their value at least 12 times.
  • Annual inflation exceeded 7% in 20 separate years.
Yet as a group, stock investors have never experienced a 20-year period when they lost money, even after inflation.

Not once.

Even with stocks zooming to all-time highs this year, I'm still as confident as ever that buying good companies for the long haul is the way to go.

And I'm still buying stocks.

I love companies like Markel, an insurer with a solid history of wise management still trading for a reasonable valuation. If you're interested in other great franchise businesses that our top analysts are looking to hold for the long run, I'd highly recommend checking out what my friend Ron Gross and his team at Motley Fool Million Dollar Portfolio are doing. You can click here for a few companies on Ron's list.

One of my favorite investing quotes comes from a guy named Nick Murray. "Timing the market is a fool's game" he says. "But time in the market is your greatest natural advantage."

Keep that mind as stocks hit new highs.

Happy holidays.


From Morgan Housel
Motley Fool One Senior Analyst
The Motley Fool



31 comments:

  1. What's actually buy and hold? If you buy an hold the wrong company like me "HP" (about 25-28)years, then you ended up not very much better. Anyway my HP is still under DRIP. May have to sell when it reach around US $40; if ever, since i have not much time left.

    ReplyDelete
    Replies
    1. Really, to me B&H means i have taken out the time factor of investing.
      This means i can choose when to sell or never. Another words you have a very deep pocket and long life. And all you need now is Lady Luck or God's Blessings. These are the 3 things i always try to remember. The rest is do your diligence.

      Delete
    2. There are two types of Buy and Hold strategy:

      One, Wrong. Hold. Sit Tight and be Common.

      Two, Right. Hold. Sit Tight and be Uncommon.

      :-)

      Delete
    3. Ouch!

      If Buy and Hold works for the majority, then most of those who invested using CPF would be making money. But reality is....

      Hanging on to losers is common; letting winners run is uncommon.

      Tell me about it! I need to sit tight more ;)

      Patience.

      Delete
    4. For those buy and hold, only those using CPF losing money? The same is not true for those using cash and SRS? Whichever mode can also lose money, when luck is not your side be it in trading or serious investing.

      Hanging to losers is common but not always wrong. When one invest and lose money in HP, SembMar and other good quality companies then there is no need to cut ties with them immediately and realized the losses. These good quality companies will back on track in a better macro economic conditions.

      Letting winners run is uncommon? Certain group of investor still fear seller's remorse. How about value investing?

      Agree. No doubt patience is a virtue. Both you (SMOL) and CW can attest to this important element in investing.

      Delete
    5. Money Honey,

      The CPF remark is due to:

      1) CPF board has reports and statistics on how many CPF members who withdrew money for investment purposes, and how many are worse off than if they have left the money earning CPF's 2.5% interest.

      Bigger sample size; more facts than opinion ;)

      Of course the statistics includes ILPs and mutual funds (the majority hence more relevant to buy and hold since most don't trade mutual funds and ILPs), but that's what financial advisers tell their clients - in the long run, the stock market returns 8% annually... Buy and hold...


      2) For the cash market, only the brokers have the % statistics of their clients are making money. I don't think they want to publish it. See if your dealer or remisier wants to reveal if you ask them ;)

      Tip: Why are there frequent promotions for new account openings?


      3) Most hardcore traders prefer using cash for trading as there's leverage in margin and CFD accounts. CPF has trading limits on direct stock investments. Boo. (Or maybe CPF knew us better than we understand ourselves? Now that's scary!)


      4) It's easier to dream CPF investments as long term "buy and hope" positions since we say to ourselves we can't see our CPF money until 55 anyway....

      Try listening to people who invested in Creative (a bit like HP and Dell?) and still holding, and they will tell you fundamentals have not changed.... One day... Will recover...

      Cash account unrealised losses are more at risk of liquidation due to: marriage, newborn, travel, medical emergencies, blah, blah, blah. Life is not a straight line extrapolation...

      Unless of course you can transfer $50,000 or more ($100,000 even better!) savings from active income to your brokerage account every year and dilute/average down your unrealised losses to oblivion. I envy such investors! Men are not created equal :(

      OK, I go cry myself silly now.

      LOL!

      Delete
    6. SMOL, Thanks for the long reply. Patience is a virtue. Using patience in the pretence of hopeless case (your example on Creative) status then that's a huge problem.

      Delete
  2. Hey CW, i am not patience meh?
    i think i am 26 years patience/patient already.
    A lot of people say you must leave out your emotions when investing.
    So is waiting patiently means leaving your emotions in the cold?
    Is buying in a market crash means also leaving your emotions in the cold too?
    No feelings - like a living Zombie?
    They say a hero is someone who can still think and act accordingly in extreme danger though he may be trembling with a lot of fear, inside.
    In reality most probably after the event, then the Hero feels how fearful the situation has been.
    i don't believe a person can invest without emotions.

    ReplyDelete
  3. Buy and hold is OK. provided u are still alive when the market reach there. I think , we should take profit along the way. We do not know what the future hold? You caught a small fish, but u let it go, thinking... i will catch it thinking it will grow to become whale. But , just ask, how u manage to grow when u let every little fish hold up in the ocean? There are 2 thing we cannot control..the future and the past. Those think they can, are those probably will end up the worse.

    ReplyDelete
  4. i think it's not so easy to control the Present too.
    Why?
    It's a Present to you ma!
    The truth is you are seldom given the choice to choose your Present.
    Anyway the next moment is your Present already.
    And the next, and the next......
    Who can tell how many more nexts, you and i going to have?
    Can you really plan for your "Present"?
    i don't think so.
    No?

    ReplyDelete
    Replies
    1. Only those who capture themselves in the past, or dream about the future will miss the present and thus lost most of the control of the present. It is not right to say u are seldom given the choice. The choice is YOU!!! .Your present are full of fault because of your previous bad choice and decision.
      U did not make full use of the many present result in even poorer present going forward.

      Delete
    2. The future is nothing but a series of action taken in the present. Like you work hard now, will only assure a bright future. Don't throw your present to the wind. But we cannot control the future, it is some truth we cannot control the very next minute which is also classify as immediate future. So it is a matter of how u justify the length of that future. Like so call buy and hold , how long, 15 yrs, 25 yrs or hold till the next generation takeover. If that is the case, of course , buy and hold work....dow 3000000 one day for sure. But what is the point, u will be the PAST. That is my point.

      Delete
  5. "The future is nothing but a series of action taken in the present."
    Unquote:-

    Yes, i agree.
    The paradox is our future may be what we are doing now bit by bit, day by day, and yet who can can guarantee our future. Life is actually "unpredictable" no matter what you are doing now or aspire to be.
    That's why the Market will always exist.
    Another words, "Man proposes, God disposes".
    You may not agree if you don't believe in any GOD.

    ReplyDelete
    Replies
    1. temperament,

      Click on unknown's nick.

      I would not have guessed those words came from someone so young...

      You started at 40; I at 32.

      Now they start so much younger than us!

      Delete
    2. The power of the Cyber world is enabling the young ones to become more powerful than the oldies who were once young.

      LOL!

      Delete
    3. Yes, u are right, life is uncertain, death is , there is nothing to do with age, young does not equate to be experience, and old does not means one is always wise.
      "singapore man of leisure"is just that, leisure, what a pity by using age as a guide, my lecturer is much younger and capable than me, this show a man without judegment.
      if age is anything, then your grandfather should be greater than PM Lee.
      U are right to said that I do not believe in God. If there is one, he will definitely not in the stock market.

      Delete
    4. This comment has been removed by the author.

      Delete
    5. Temperament.

      There is truth that one may not control the future, but by not trying is sure failure. Just like we may not know when market will crash ,but by having a stop loss will do the trick.
      By listening to so call expert making bubbles noises will make you confuse. By not doing homework and listening to so call expert buy will sure back fire. Learning to value invest may not ensure success, but at least, it is not amount to betting. Doing due diligent ensure success rate.

      There will come a time for us to buy cheap when you see reit yield at 15% again, we have a chance to see that. Buy and hold is half wrong, the other half to be right is to known when to sell a stock, if a reit is yield 3% and stock px went up some 20%, does it not make sense to sell? Thus due diligent pay.

      There are no absolute right or wrong in life. To think that one is older , thus smarter is wrong.

      Delete
  6. Hi SMOL, CW,
    When we were younger, where got Cyber World? Where got Internet? We didn't even have personal computer. We oldies really backward then compare to them now.
    So if unknown is really who she/he is, i am not so surprised. This is really the ERA of Explosive Knowledge. They really learn and know a lot of things we don't know. But our life's experiences is where they can not compare or take it away from us.
    "Chiang hai se lau te lat"

    ReplyDelete
    Replies
    1. Yalor.

      Those days when we small flies wanted to buy or sell shares got to wait for our brokers song or bo to take our calls or return our pages.

      Broker is King!


      Delete
    2. Yes, way back was a disadvantage, by the time u reach your broker thro the phone the px has change. I remember DBSland( now capitaland) , he screw up, end up I lose some money. And also Hai Sun Hup. during one of the bull run. Now we have internet wonder.

      And if you guy still instead and think so, then it had to be, it cannot be otherwise. You all have your right to your opinion.

      I respect that right. I am not young . I am 55.

      Good luck to all.

      Delete
    3. 55.

      Time to think about CPF Investment Account.

      To close or Not to close.

      LOL!

      Delete
    4. Ya lol at 55.
      i make a mistake here with my own CPF.

      Delete
    5. Why close?

      i think if you have no choice then you close because you needed to use the money for something, somewhere.

      Otherwise treat it as CPFIS where you can enjoy the Fund as a perpetual Bond @ 2.5 % min. and at the same time to use it as an emergency fund too. Even for standby bullets to use when there is war in the market (aka market crashes).
      i think it's hard to find an equivalent like this in the investment market.
      Unless of course you don't trust PAPpys handling your money anymore.

      Delete
  7. Ha! Ha!
    Ya lol!
    That's why soon i learned how to use tele-broker to trade while i was still working. Then i use internet to trade as soon as i am not working till now.
    But i remembered how i could sit next to my 1st broker and see him worked. That was a "Big Thing" in those day.

    ReplyDelete
  8. Ha! Ha!
    SMOL, caught you! Caught me too in a way.
    You see the way the writer expresses makes me doubt a bit of his/her age. Without experiencing life how can he expressed in this way.
    Now he/she talks about DBSLAND(now Capitaland). Ah.......... even about HAI SUN HUP which i have forgotten about because i never bought any. i think HAI SUN HUP is about something on Shipping if i can remember correctly without need to google to confirm.
    This is one example what i mean about older with life experiences. And he or she is right that older not necessary wiser- Simply some people never want to learn form their mistakes but blame it on others.

    It's good we take people at face value.Why bother to think further, unless there is investment matter at stake.Then we have to pay very careful attention to what's the risk involved.
    Ha! Ha!
    Like what coconut said, "He is tuned to the frequency of the Market most of the time that he finds it hard to relate to people in other terms" But it has the obvious advantage when someone try to take you for a ride. You just subject him to the "Investing in the Market's Principles". (If only when necessary hoh).

    i am sorry if some people can't understand what i write. He must be quite new to the Market. Again, this where "Experience Counts" if you have been learning from your mistakes as you journey through life.
    "Life is a journey though the roads are different for everyone, the destination is all the same"
    So, sometimes i think why worry and struggle too hard.

    ReplyDelete
  9. Here now, i like to share a partial prayer by an unknown Christian which show great understanding about his God and human beings.:-

    "No one reacts to things as they are but to one own's mental images;
    Keep me aware that it is not what happens to me in life that matters, but rather how i react to what happens"
    Amen.

    i think it is basically what living is about. It can even apply to the Stock market. No?

    ReplyDelete
  10. temperament,

    I knew it can't be that young child (Pa! Don't use my account lah!), so I wrote my comment as an "invitation" to the writer to reveal more about himself if he wants to (raise east; attack west). LOL!

    I think I just got a lecture on "age"...

    You are right. What matters more is how we REACT - in life and in the stock market.

    (My reaction?) OK, I now go stand outside the classroom as penitence like in old times.

    ReplyDelete
  11. Ha! Ha!

    SMOL, a good one. Now you got me. (aka raise east; attack west).

    O. K. i also need to go stand outside the classroom as penitence like in the old times.
    And it really happened to me many times especially in Primary School for clowning in class and a "Touch -Me-Not" (aka getting into fights at the slightest provocations).

    ReplyDelete
  12. quick info on Hai Sun Hup :- http://www.singaporeshipping.com.sg/abt.htm

    ReplyDelete

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