Equity Investing - The Select, Buy and Keep Strategy.
Discussion
I post on this Finance topic, simply to encourage investors (possibly new to the subject), to think about the buy and keep strategy.
There is nothing in it for me, but after having 35 years of equity investing experience (including several stock market crashes), I am happy to pass on some of what I have learnt, if anyone is interested.
With markets struggling this year, I have had an amazing four months and that is with a completely unchanged portfolio.
(You will be aware of the human characteristic of talking about shares, when everything is going well.
)My holdings have been unchanged for many years, so one advantage of this method is no work to do.
Those of you familiar with Mr Warren Buffett, will know that he uses exactly the same basis for equity investing.
You might be interested in the story of one of my holdings, which happens to be in the news today.
Compass Group is an enormous catering business. Mostly operating food services within clients premises. If your employer has a canteen/restaurant area, it might be operated by Compass, although the brand names they use do vary.
Years ago I came across this businesss which looked interesting. Large, non-cyclical which I like, good profitability, understandable activities, a record of steady growth and operating internationally. It has been one of my holdings for many years.
The interesting part began in March 2020, when I realised it was not as non-cyclical as I had thought it was. The pandemic suddenly arrived, so lock-down would obviously be a disaster for the catering and hospitality sector. At times like that, the importance of holding large businesses becomes clear. They need the extra finances to cope and a very capable management team.
Anyway, I stuck firmly to my practice of not selling, in fact I bought more to give to my family. The Compass management handled the crisis so well and have come through the pandemic firing on all cylinders again. Half year results announced today and dividend payments are now being resumed.
I am describing this because it is an example of the long-term strategy working.
Not panicking when problems arise, continue to keep all the holdings, then wait to see what happens.
I expect many investors including professional active fund managers, might have immediately sold during that March 2020 stock market crash. Hindsight shows the perfect action would have been sell in January and buy back in July, but of course who would have thought of selling in January. Holding long-term eliminates attempting to guess the market timing and you are already in for the sudden upward movements.
The chart shows many years of continuous, reliable, steady growth, then suddenly 2020 and bang.
Edited by Jon39 on Wednesday 11th May 13:17
Jon , may I ask - your posts on finance are clear in your strategy of holding only long term shares in individual companies as opposed to Fund purchases but roughly how many individual companies do you therefore hold shares in ?
Have you also ever begun that long term hold in say EIS entities or have your picks already been established ones ?
Have you also ever begun that long term hold in say EIS entities or have your picks already been established ones ?
Derek Chevalier said:
Jon39 said:
I am describing this because it is an example of the long-term strategy working.
Potentially, but there was obviously no guarantee that the markets were going to bounce back so quickly (thanks, in part, to lumpy stimulus). My story here Derek was not about markets, but of how one steadily growing business was suddenly hit hard by a most unexpected event, and me continuing to remain invested, even buying more.
On this occasion it worked out OK. No guarantees obviously, but it became a clear demonstration of excellent management.
Imagine having a significant part of the business closed down for a time. That needs skill to cope with.
alscar said:
Jon, may I ask - your posts on finance are clear in your strategy of holding only long term shares in individual companies as opposed to Fund purchases, but roughly how many individual companies do you therefore hold shares in ?
Have you also ever begun that long term hold in say EIS entities or have your picks already been established ones ?
Have you also ever begun that long term hold in say EIS entities or have your picks already been established ones ?
25 holdings at present, a few as a result of corporate actions, are of little significance.
Warren Buffett does not agree with diversification for investors who understand businesses. For other people he suggests low cost trackers.
His aim has always been to find winning companies. "If you hold a winner, then why put further money in an average company further down the scale, rather than into that winner. It does not make sense".
Sounds easy, but I find I need to hold a reasonable spread for piece of mind. Even my various laggards do sometimes unexpectedly recover. Oils are the current example, so I am therefore happy to hold 25 companies. As Mr. Buffett rightly predicts, the best performers have only been a few of those 25. As I don't have his ability, through holding a reasonable number, the better ones hopefully gradually reveal themselves.
I am only concerned with the overall percentage progress though, compared to a market average, so individual holding performance is not important, because it can vary so much from year to year.
The holdings are long established businesses.
I had to look up EIS entities ! No, the idea of receiving tax relief to invest in (are they usually smaller companies?) is not my scene.
I did small companies when I started, but soon gave that up. Big firms tend to have stronger managements and importantly a 'cushion' when disasters occur. Think of BP in the Gulf of Mexico, and recently Compass Group (catering / pandemic). They only survived because of their size.
Jon , interesting comments / thoughts and thanks for taking the time to reply.
Yes EIS are usually much smaller companies although not necessarily so fledgling that they are deemed SEIS - Seed being the operative first word.
Whilst the tax relief is a factor obviously quality of the company should always come first.
Over the years as a portfolio overall for me ( and only as part of other investments ) they have performed very acceptably with in recent times the likes of Gousto and Bloom and Wild seeing multiple returns of original investment.
However by definition they are not long term holds like yours.
Yes EIS are usually much smaller companies although not necessarily so fledgling that they are deemed SEIS - Seed being the operative first word.
Whilst the tax relief is a factor obviously quality of the company should always come first.
Over the years as a portfolio overall for me ( and only as part of other investments ) they have performed very acceptably with in recent times the likes of Gousto and Bloom and Wild seeing multiple returns of original investment.
However by definition they are not long term holds like yours.
Jon39 said:
Derek Chevalier said:
Jon39 said:
I am describing this because it is an example of the long-term strategy working.
Potentially, but there was obviously no guarantee that the markets were going to bounce back so quickly (thanks, in part, to lumpy stimulus). My story here Derek was not about markets, but of how one steadily growing business was suddenly hit hard by a most unexpected event, and me continuing to remain invested, even buying more.
On this occasion it worked out OK. No guarantees obviously, but it became a clear demonstration of excellent management. ?
Imagine having a significant part of the business closed down for a time. That needs skill to cope with.
We share similar views on the importance of long term investing and ignoring short term noise.
I just know that we all have biases (myself included) and one of those can be a touch of hindsight bias, or the expectation that the markets will bounce back quickly because of the never ending 'Greenspan put'.
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