Tag Archives: #LongTerm

Defining a Long-Term Hold

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Homework, people, is the most essential element of long-term investing.

No wonder they stressed so much upon homework in school. 

They knew what they were talking about. 

And, it has counted. I always took my homework very seriously. 

Things are no different in the markets. 

Do your homework well, and diligently, and the pay-off might surprise you. 

In the markets, you are not paid off with marks, but with appreciation in the value of your holding. 

So, what kind of homework goes into defining a long-term hold?

Today, we have stock-screeners, so use a stock-screener to spit out some potential long-term holds after defining the screener’s parameters as per your wishes. Choose a stock from the results of the screening that you might want to delve into. Then, delve into it. 

In scam-ridden India, the first things that one needs to look for are honesty and integrity.

Look very, very hard.

Do repeated fraud / scam / bribe searches. The web is your oyster. 

Look into salaries of top personnel. Low is good. If salaries are on the higher side, is it justified? Specifically, scrutinize the salary of the top promotor and the CEO. If not justifiable, just drop the stock. 

Look for acts of good governance. 

Openness.

Sharing.

Shareholder-friendliness.

Truth.

Responsibility.

Once honesty and integrity are established, go over the fundamentals. 

Overall, fundamentals will either meet your parameters, or they won’t. Also, it is you who is going to define the fundamentals you wish to gauge, and what you wish to see. 

Are you seeing what you wish to see?

No?

Discard.

Yes?

Proceed.

Is the stock going to be around even after ten years?

Gauge. Product, business-model, circumstances…

You think no?

Discard.

You think yes?

Proceed.

Is the business scalable?

No?

Rethink.

Yes?

Proceed.

Is there debt in the equation?

Are you comfortable with the level of debt?

No?

Discard.

Yes?

Proceed.

Get the overall picture. 

Are you comfortable with the overall feeling you are getting?

No?

Discard. 

Yes?

Proceed.

Look for an entry point. Open the chart and try and enter upon a base or some other technical level. If none is available, wait for a level to come, and then make your entry. 

Thus, you have successfully defined and entered your long-term hold. 

 

Nath on Equity : have stuff – will talk

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Behind Equity, there’s 41). human capital. 

It’s human capital that keeps 42). adjusting equity for inflation.

43). No other asset-class quotes on an inflation-adjusted basis. 

That’s good news for you, because 44). equity takes care of the number one wealth-eater (inflation) for you. 

All world equity ever quoted, whether currently existing or not, has 45). returned 6% per annum compounded, adjusted for inflation. 

46). All equity ever quoted that still exists has yielded 11% per annum compounded, adjusted for inflation.

Equity selected with good due diligence, common-sense and adherence to basic rules listed here and in previous articles is 47). well-capable of yielding 15%+ per annum compounded, adjusted for inflation. 

However, equity is 48). a battle of nerves, at times. 

This asset-class is 49). more about creating long-term wealth. 

It can be used, though, to 50). generate income through trading. 

51). Trading, however, is burdened with more taxation, commission-generation and sheer tension. 

Trading equity 52). eats up your day. 

Investing in equity 53). gives you enough room to pursue many other activities during your day. 

Trading strategies are 54). diametrically opposite to investing strategies. 

55). It takes market-players the longest time to digest and fully comprehend 54).

For long-term players, 56). up-side is unlimited. This is a vital fact. 

Also, 57). downside is limited to input. Factor in good DD, and that very probably won’t even go half-way. 

58). Thus, 56). and 57). make for a very lucrative reward : risk ratio. 

Equity needs courage, to 59). enter when there’s blood on the streets. 

It also needs detachment, to 60). either exit when required for monetary reasons, or when everyone else is getting ultra-greedy and bidding the underlying up no-end.