Get Long or Be Wrong
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”
- Benjamin Graham
As I'm writing,
The portfolio is UP +37.82% YTD
Our benchmark, the S&P 500 is up about +12.55% YTD
Long Term Investing Get Long or Be Wrong should be the mantra of all investors, especially in the current market. The virtues of long-term investing are extolled by many and followed by few. The reality is that the best long-term investors, those who really leave their investments alone, are the people who rarely look at their investments; or worse, don't know what their investments are. Unfortunately, those investors are missing gains and opportunities to avoid losses because they 'forgot' about what they own.
If you have a 401K at work, do you know what it's invested in, I mean what it really owns and what the costs are to you? 401K's typically own funds that were created for the investment firm that sold the sponsored plan to your company. Inside that fund will be an array of stocks and possibly bond funds that any individual investor can buy on their own. The challenge that many long term investors face is the drumbeat from financial pundits who say, "Buy and Hold is dead". You don't have to ignore the financial news to tune out the noise, just learn to parse out the hidden language; long-term investing, buy and hold investing, buy and forget investing, passive investing, active investing, and trading, day-trading, and swing trading. All these terms describe duration, how long the investor holds the shares before selling.
When I talk about long-term investing I'm specifically recommending that you 1) know what you're buying and why, 2) know what to pay, and 3) know when to sell. When you buy stock in a company you should know the company and its products and services as though they are your own; because they are, you own part of the company. When you invest for the long-term you won't be thrown around by sudden changes in the stock price, market declines, or rumors. Knowing that there are catalysts like earnings, an FDA approval, a product launch, expansion in overseas markets, or a stock-buy-back announcement will keep you steady as you await each catalyst to materialize. Sometimes management doesn't execute well, the catalysts don't happen and the stock eventually declines. Make sure that you determine if the company isn't delivering or if it simply isn't delivering on your timeline.
"Tips Are For Waiters" - Jim Cramer
What's long-term? I try to hold stocks in the Stay Invested portfolio for at least 1 year. If the thesis I have about a company breaks down I may have to sell before the year is up. I also might sell because gains are big and the stock doesn't have a lot more room to rise. I prefer to hold a stock forever, but the reality is that 1-5 years is probably the duration of a long-term hold because the best growth will occur in the early years. In some cases, renewed growth can occur when a mature company pivots on a new growth plan; Microsoft and Apple are excellent examples. I would prefer to keep a stock for 10 years or more, and a few in the portfolio probably will keep growing that long, but few companies can continue to deliver 30-40% returns over a decade.
Once you know what's in that 401K portfolio, ask yourself, "Am I invested in the major trends that are unfolding right now"? These trends don't need a lot of discussion as they're all pretty easy to spot and include; Alternative Energy & Transportation, Digital Commerce & Payments, Healthcare & Biotechnology, Technology Infrastructure, Technology Services & Communications, Leisure & Recreation. A well-balanced portfolio would also include some names in financials, materials, industrials, but the big growth that will build wealth will come from these six big trends.
I'm still working on the portfolio for 2021, and this year I'll be focusing more on those big trends. The names above interest me, some are already in the portfolio, and I may choose some more; for now please consider these examples of companies that should thrive within their respective trends. There are many more to consider. Typically I've tried to build a portfolio that can grow from deep-value with a few high growth stocks added in. The portfolio has always been designed to work well when investors rotate from small growth companies to large growth companies and from sector to sector. The purpose was to smooth out the ride so that my readers who are investing real dollars don't jump in and out of the market. But the market has changed and the changes are persisting, with the biggest changes being driven by COVID-19. Low-interest rates will be with us for a long time. Low-interest rates have made it impossible to invest anywhere except stocks. Savings accounts don't pay anything. 10-year bonds below 1% don't keep pace with inflation and the income is pathetic. Even real-estate has become a tough investment since the work from anywhere trend has all but eliminated the need for office space and many are flocking to the suburbs to buy homes making rental apartments a challenging market. The Federal stimulus is going to eventually drive inflation up, but that will take some time. If what you need is income, there are many great companies that pay high dividends that can be used for income. If you desire growth over income, that's the focus of Stay Invested. For bond investors, bond ETFs are likely to be a better bet since the bond itself can only pay the interest plus a return of the principle. A bond ETF can grow share price plus pay a dividend, look at the BND and MUB as examples.
Beating the market is all well and good. Beating the market consistently, year-after-year with a better risk-adjusted return is the goal we're after here.
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker
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Keep Me Honest 2020
Today is a good time to carefully leg into stocks again (3-20-2020).
Worst Case: S&P 500 decline further to around 2,100 - 2,150 (3-28-2020).
Middle Case: S&P 500 level out around 2,650 - 2,700 (3-28-2020).
Best Case: YE S&P 500 eventually rise to around 3,000 - 3,200 (3-28-2020).
Market bottomed March 23, 2020 at S&P 500 2,237.40 (4-17-2020).
Rule #1: Don't lose money
Rule #2: See Rule #1
Rule #3: Portfolios go to zero, markets don't, Stay Invested
Rule #4: When good stocks you own drop 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase
Rule #7: When an investment bank sells below book value, buy it
Rule #8: Tips are for waiters. Do your own homework.
Rule #9: Don't sell a stock because you're bored with it. Do your own homework.
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
I am invested short in these securities mentioned in this post: GSX
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.