This post is about holding. Holding stocks is a real nightmare, especially with the information glut that is thrown at you constantly. You are on twitter, whatsapp, moneycontrol etc and people write their views in 140 characters. We get perturbed, and start getting psyched out. Information is a double edged sword, you cant be without it and at the same time it can kill portfolio performance.
So one needs to be a constant contrarian, to hold stocks for a very long time. Being contrarian is not just important while buying or selling, one needs to be contrarian while holding. Typically any reasonably successful investors can boast of a 2x,3x or even a 5x. Very few can boast of 20x. The simple reason is our minds get sucked in to trending go-go stocks from our long term picks as we think the story might be over. Stock price movements are in general non-linear with the business story. Therefore sticking to a 5x stock is a contrarian approach as most of the market is out after the initial burst. So a long term stock pick feels like this:
- You buy the stock when nobody likes it. It hovers around your buy price for a while
- Then if the business does well as you predicted, the stock moves handsomely, maybe a 3x in 3 years
- stock does not move after the initial 3 year move. Probably even corrects 40%
- Now this is where most of us sell out, thinking the story is over
- Business picks up again, stock continues to move
One needed to be contrarian after the initial upmove. The rest of the market would punish a good business because of unreasonable expectations but this is unfair. Being constantly contrarian would mean an independent assessment of the state of business without the prejudice of price movement. This is tough but logical. One could argue even for averaging up at the point when the rest of market sells out. Thats even tougher.
Moving out of a multibagger stock should be only because of the lack of confidence in the current business. Moving out because of portfolio concentration can be detrimental and often a fund managers problem. As an individual investor, you have the advantage of having a concentrated portfolio. One of the easier things to know with a winning stock in your portfolio is how money was made in the past as you were actually part of the initial journey. So inherently you know the managements capability to deal with a blip in the growth story.
Holding creates money and not buying,selling. The art of holding means the art of staying contrarian always. Hope you liked my thoughts!