When you hold stocks for the long term (which can be a small or large part of your portfolio), then you need to combat unfamiliar evolutionary compulsions.
If you are not prepared, you cannot help but throw in the towel.
In India a no-brainer stock was TTK Prestige (This was my first blog post in October 2009, https://lifeandequities.wordpress.com/2009/10/25/utensils-market-ttk-prestige-and-hawkins-cooker-in-india-presents-multibagger-opportunities/I wrote and bought at 90Rs, Currently 9000 INR, No I was not smart enough to make 100x).
It is also easier to hold on to a company, if its size is relatively smaller compared to the opportunity in the industry.
It is easiest to hold on to a company that, for a 10 year duration if its revenues / profits compound at 15-30% per annum and its stock prices also fluctuates 15-30%.
In the case of TTK it was such a cinch because we did not experience 50% drawdowns or even close. You should see the drawdowns in Apple and Amazon https://lifeandequities.wordpress.com/2016/11/25/no-pain-no-gain/
The two companies that I have had the grit to hold on to despite multiple 50% drawdowns are Muthoot Capital https://lifeandequities.wordpress.com/2017/04/11/drawdowns-encore/ and NSE Kenya. Once you have faced the enemies of evolutionary compulsions that want you to survive a crisis (i.e. same part of the brain asked you to sell a stock so that you can survive as if the tiger is hunting you, pressing you to take flight), then it gets easier in the next crisis, to a point where it makes no difference at all, but you have to yourself learn to combat with those brain functions in your body. That cannot be taught from the book but can only be experienced, and then only learnt, with sizable sum is at stake (say, 10 years of your annual savings).
Introduction of this intensity of drawdown for an in-experienced person is stock market death knell. Its the people not the companies responsible for this behaviour. People fail to see their own delirious behaviour, a little reflection would suffice, the equation becomes ever more complicated for mob behaviour. We saw what happen with Crypto currencies, which will inevitably end in tatters.
Solve for X
The inner mental/emotional universe of a person is many fold times more complex than his physical organs, and last time I checked no genius understood the physical body either. So fitting, when Guru Nanak said, “kudrat keem na jaanee-ai” Nobody can completely understand His nature, because you have to go beyond thinking, no point thinking, coz you have to stop thoughts and go beyond thinking, and also “solve for your-Self-self not just the outer world”
If you have a concentrated portfolio, you will eventually lose a big part of the portfolio one day, only a matter of time. And if you don’t have experience under the belt, then you’d like lose your capital and love for the equity markets too. Its better to get education first, then jumping headlong based on what your neighbour is earning.
Read about this recently: http://www.evolutionaryeducation.com/
“The introduction of competition into education before students have achieved proficiency in the fundamental skills of whatever then are competing in, compromises and diminishes all aspects of the learning process.”
“Evolutionary Education challenges the very foundation of our society. It creates a clear vision for our survival and transcendence. To realize this vision, we need to move away from our current competitively based education system, which, for a majority of people, leads to self-doubt, fear, anger, sadness, overly aggressive behavior, performance anxiety, resignation, and limited benefits, toward a new paradigm based on a non-competitive model that generates innovation, inspiration, excellence, inner confidence, peace, love, and joy.
Some of you call yourselves highly competitive, and for some that may be true, but for others it means that you are highly motivated and have a strong desire to excel. This is different than being competitive. It’s easy to confuse the desire for excellence with the trait of competitiveness, when in fact they are very different.”
From the stock market perspective this implies to me, “If the investor is not used a couple of previous 50%+ drawdowns, he will inevitably react irrationally during the first few.”
Curiosity not greed, Excellence not competition
Most of the humans are still in the womb proverbially or toddlers at best. The words thrown around are greed is good for the world because it leads to new discoveries and betterment. Its actually the curiosity at core, not greed.
There is murder everywhere on earth, air, water, sky, but its not un-imaginable to believe there are planets where beings cooperate and live 1000s of times better off than earth residents. Until the education and self correction required in the man is reflected and and consented by own free will, external methods of policing and counter terrorism are band aids. What is required is for everyone to excel in their field, not bead the brains or brawns out of other person.
We are all very gifted in certain narrow domains, and its that unique gift we can give to other few people around us. Its very easy to cross the line from curiosity or excellence to greed and dog eat dog competition, the problem is incorrect definition and wrong targets is not outside but inside the human understanding.
The civilization can only be as great as the greatest people living in it, not by the outward garb of skyscrapers or the institutions, and its longevity solely depends on people.
What I find puzzling is how smart people can give in to money/wealth/fame/popularity/prestige, agree to be seduced by lets say supermodel beauty, given in to all other material possessions but fail to realise that its 99.999% empty space and their body is already under delusion, and, that perhaps, its possible for some intelligence (we live in very rational times :-), hence the use of word intelligence) greater than themselves organise this kindergarten (with all the previously mentioned gifts) for them, and if so, then why is it no possible to that intelligence to correlate with them at their level, whether they are 5 year old, or genius like Einstein, so the gravest mistake one can make is to ignore the giver of all gifts, imo. To generalise, I feel that if the needle of your attention has been focussed to sole outward affairs and material improvement without exploration and reflection into your mental, emotional iceberg under the physical body, then you find it hard to correlate.
It can’t be so hard to correlate and merge in the Source, you can be illiterate and still ought to have the ability. I look forward to the external and internal geniuses in the future who are able to excel in the physical world and guide others spiritually as well.
I looked at this French, company 4-5 years back, and always stuck in my screeners, and because of the very advanced nature of its work related to aerospace, electronics, never understood its edge over competitors and spend the time. A perfect example of the company where one should not have problem holding for the long haul because it experience growth in share price almost linearly from 2003 onwards from 2 Euro to now 200 Euros. Its called SERMA Technologies. (200 Million Euro market cap.)
What I mean is that its easy to hold on to a stock which goes up 10X every 10 years without much fluctuation, and the revenues also keep pace and does not trade a crazy PE multiple. Still at 21 PE.
You will miss out on companies no doubt, that go into crazy multiples, like this maker of Da Vinci surgical equipment called Intuitive Surgical, which is a bloody easy business model to understand. This has been also another 100X and very easy to understand.
What follows then is as follows according to me, “Simple business models that are easy to understand for masses like Restaurants, Burger chains are trading at 50-100 PE valuation, this has been undone by Lynch, Buffettology in the 1980s 1990s and is ongoing, even when these models do not deserve such valuation. Case of pendulum having swung too far. ” The corollary is, “If you spend some extra time in understanding the company and its industry you may be richly rewarded for your contrarian research”.
We have truly take the lesson from Lynch of moving away from Winchester disk drives to Dunkin Donuts, actually we have moved too much, such that many tech. companies have become a value buy :-). I hope it stays this way.